Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

Oral Answers to Questions — POST OFFICE

British Railways (Mail Charges)

Mr. Marshall: asked the Postmaster-General what was the rate charged by the railways for carrying the Royal Mail in 1926; and what is the rate now charged by British Railways.

The Assistant Postmaster-General (Miss Mervyn Pike): There is no simple rate for payments to the railways. But I can tell my hon. Friend that the total amount paid in 1960–61 was about five times that paid in 1926–27 whilst the traffic had nearly doubled.

Mail Deliveries, Knutsford

Sir W. Bromley-Davenport: asked the Postmaster-General if he is aware that letters posted from London on Friday by the country post do not reach the Knutsford division until Monday morning; and what steps he is taking to improve this service.

Miss Pike: My right hon. Friend is very sorry about these delays which have been due to failures to carry out prescribed circulation arrangements. Special checks are now being made on the mails from London to Macclesfield and Knutsford, and I understand that in recent weeks the service has improved. We shall do everything we can to avoid further failures.

Sir W. Bromley-Davenport: Is my hon. Friend aware that for the past 17 years I have been complaining about this bad service and that there has been no improvement whatsoever? Is she further aware that before the war letters posted in the Knutsford division used to

reach London by first post the same day? Therefore, from that, would my hon. Friend not further agree that the end product is always the same from any nationalised industry to the consumer—worse service at increased cost?

Miss Pike: I am aware of my hon. and gallant Friend's complaints and I gather from what he has said that prewar we did the impossible.

New Office, Blyth

Mr. Milne: asked the Postmaster-General what progress has been made in regard to a new post office at Blyth.

Miss Pike: My right hon. Friend has nothing to add to the reply of 20th March about a new office in Blyth but plans are being made to enlarge and modernise the main office there.

Mr. Milne: I welcome that reply, but does the hon. Lady realise that this virtually amounts to breach of a promise based on her reply to my Question on 28th March last when she said that she would look into the matter on the spot? We extended an invitation to her to do so, but we are still awaiting her visit. If the jobs which the President of the Board of Trade has promised my constituency and which are in the pipeline at the moment are to materialise, then additional Post Office facilities—

Sir W. Bromley-Davenport: Get on with it.

Mr. Milne: Mr. Speaker, is it in order—

Mr. Speaker: I think that hon. Members are uneasy if supplementary questions are put at length. Perhaps the hon. Gentleman will remember that

Mr. Milne: The point I was making when I was rudely interrupted was that if the jobs which the President of the Board of Trade promised my constituency are to materialise, then the Post Office facilities to back those jobs up will have to be much better than they are now.

Miss Pike: I assure the hon. Gentleman that there is no question of breach of promise as far as he and I are concerned. I intend to come to his constituency.

Contracts, Scotland

Mr. Ross: asked the Postmaster-General what is the estimated cost of telehonic cables for the current financial year; and how much of this will be spent in Scotland.

Miss Pike: My right hon. Friend expects to spend about £14 million on the purchase of telephone cables in the current financial year, of which approximately £150,000 will be spent on orders placed in Scotland.

Mr. Ross: Even on the Goschen formula this would not be counted as very satisfactory. Will the hon. Lady give a good example and ensure that, wherever possible and all other things being equal, these contracts are placed where employment is urgently needed, since this would encourage other Departments to do the same and assist the Government in their proclaimed policy in regard to employment?

Miss Pike: I assure the hon. Gentleman that we do that. There is one difficulty in regard to telephone cables in that there is only one cable manufacturer in Scotland.

Mr. Rankin: Then get another.

Mr. Willis: asked the Postmaster- General what is the estimated expenditure on Post Office uniforms in 1962; and what percentage of this will be spent in Scotland.

Miss Pike: My right hon. Friend expects to spend about £l¼ million on Post Office uniforms in the current financial year. About 13 per cent. of this will be spent on orders placed in Scotland.

Mr. Lawson: asked the Postmaster-General what percentage of Post Office telephonic equipment is manufactured in Scotland.

Miss Pike: Just over 1 per cent.

Mr. Lawson: Does not the hon. Lady agree that a large Government spending Department ought to use some of its spending power to help the Government in their overall policy? Private firms do this sort of thing; they ask other firms to do what they want them to do. Could not the Post Office see to it that it used its spending power to ensure that there was a more equitable distribution

of the type of industry about which we are all concerned?

Miss Pike: I appreciate the point the hon. Gentleman makes. Perhaps he will remember that, small though it is, the proportion is twice as large as it was when he asked the question last time.

Mr. Gourlay: asked the Postmaster-General what is the average annual expenditure on Post Office mail collecting boxes; and what percentage of this is spent in Scotland.

Miss Pike: Average annual expenditure over the past five years has been £65,000, Sixty-six per cent. of this has been spent on orders placed in Scotland.

Mr. Gourlay: I am glad to hear of the larger percentage in respect of these articles compared with some of the others mentioned today, but is the hon. Lady aware that many people who were previously employed in the foundry industry in Scotland are at present unemployed? Could not she assist her right hon. Friends the President of the Board of Trade and the Secretary of State for Scotland in placing still more orders in Scotland?

Miss Pike: We are well aware of the special difficulties in Scotland.

Sir Richard Pilkington: In view of all these Questions today, could not Scotland be given colonial status?

Offices

Mr. Spriggs: asked the Postmaster-General how many post offices are situated a half-mile or less from another post office in the United Kingdom.

Miss Pike: My right hon. Friend is sorry the information is not available, and it could not be obtained without disproportionate expense.

Mr. Spriggs: Does the hon. Lady recall that one post office was mentioned in correspondence I had recently with her, and will she be prepared to make the best use of an official pair to visit the district to see whether she can agree to give us a sub-post office?

Miss Pike: I receive very many attractive invitations to visit different parts of the country and I do my best to fall in with hon. Members' wishes.

Telephone Directories (Agency Entries)

Mr. Chataway: asked the Postmaster-General whether he will continue to accept entries in the telephone directory from agents of building societies, even where the agency does not constitute the whole of a firm's business.

The Postmaster-General (Mr. Reginald Bevins): To prevent the London telephone directory from becoming even more unwieldy than it is, I have had to discontinue separate entries for agents under the name of the society they represent. I am, however, examining the case to which my hon. Friend has drawn my attention, and I will write to him at an early date.

Mr. Chataway: Will my right hon. Friend accept that it is not worth making the telephone directory smaller if the information that people want is not there? Are there not firms which really need to have entries under two separate headings in the telephone directory?

Mr. Bevins: Yes, but, of course, the size of the London telephone directory is increasing at the rate of 5 to 10 per cent. every year and, obviously, it cannot go on indefinitely. There are special cases, and this may well be one of them.

Household Letter-boxes

Sir S. Storey: asked he Postmaster-General what steps he has taken to encourage the use of household letterboxes conforming to the specification of the British Standards Institution.

Miss Pike: Publicity in many forms has been used to encourage installation of boxes conforming to the British Standards Institution specification. We have had a cartoon film on television, posters in post offices and in ironmongers' and newsagents' shops, displays in post offices and at successive building trades exhibitions as well as at the Buildings Centre in London. Local authorities have been supplied with leaflets for attachment to all building plans which they approve. A copy of the leaflet has also been sent to people whose existing letter box is particularly troublesome. Finally, my right hon. Friend has written quite recently to all local post

office advisory committees seeking the help and co-operation of the members in keeping the B.S.I. specification constantly before the public.

Sir S. Storey: May I ask my hon. Friend why, when her right hon. Friend wants a standardised letter box with an 8-inch opening, he sends out a circular in an envelope 9 in. by 11½ in.? Why is he sending out a circular letter using a heavy quality envelope which is designed for re-use?

Miss Pike: That is another question.

Sir W. Bromley-Davenport: Is not this yet another example of a nationalised industry? However many letter boxes may be installed, is it not a fact that the end product will always be the same— a worse service at increased cost?

Oral Answers to Questions — WIRELESS AND TELEVISION

Television Licences (old-age pensioners)

Mr. Frank Allaun: asked the Postmaster-General if he will allow old-age pensioners to pay a reduced television licence or to pay it in quarterly instalments.

Mr. Bevins: I have carefully considered these suggestions from time to time but have decided against them. The grant of a cheaper television licence to retirement pensioners would be unfair because it would be indiscriminate. To allow the fee to be paid by quarterly instalments would add unduly to the costs of collection.

Mr. Allaun: While believing that the real solution is an adequate old-age pension, may I ask the Minister how he thinks that a pensioner living alone, who would probably enjoy T.V. more than anyone else, can afford £4, or, as has been suggested, £5 to £6? If a car licence can be paid for quarterly, even if it is slightly more than the quarterly part of the charge to cover the expenses of administration, why cannot T.V. licences be similarly paid quarterly?

Mr. Bevins: Not all retirement pensioners rely on the retirement pension. The great majority do not. There is no parallel between the quarterly payment


of the Road Fund licence and the television licence because, as the hon. Member knows, many motor cars are laid up during the winter.

Mr. W. R. Williams: In view of the fact that quite a large number of local authorities, and indeed some private enterprises and football and cricket clubs, try their best to do something to concede some privileges to these old people, may I ask the right hon. Gentleman whether he cannot think of some way in which a big Government Department could do the same?

Mr. Bevins: Frankly, I think that the only conceivable way in which it could be done would be on the basis of quarterly payments, as suggested by the hon. Member for Salford, East (Mr. Allaun), but, of course, this figure of £5 to £6 for a television licence which has been bandied about is pure speculation. I do not know what will happen, but if there were a change on that pattern obviously the case for doing something would be strengthened.

Cigarette Advertising

Mr. Frank Allaun: asked the Postmaster-General when he will announce Her Majesty's Government's decision regarding cigarette advertising on commercial television.

Mr. Bevins: As the hon. Member knows there are now no cigarette advertisements on television until the advertising interval before the 9 o'clock news on weekdays, and at about the same time at weekends. The Authority is examining the type and style of cigarette advertisements on television. Meanwhile the Government are urgently considering this problem, but I cannot yet say when decisions will be announced.

Mr. Allaun: Since it is now ten weeks since the Royal College of Physicians issued its Report, may I ask how much longer it will be before the Government make up their mind on this matter? I hope that the Minister, if he does anything, will not merely restrict the time during which these advertisements are shown, when many people think that they should not be shown at all. Is the right hon. Gentleman aware that while the Government are making up their

mind damage to health is continuing because those advertisements of a romantic type aimed deliberately at young people are still continuously appearing?

Mr. Bevins: I can assure the House that the very wide range of suggestions in this Report are being considered as a matter of urgency and I.T.A. is discussing the matter with its Advertising Advisory Committee, which may recommend a complete ban. If it does, that advice would be mandatory on I.T.A. I have power, if I decide to use it, to ban all cigarette advertising on television, but I would not dream of doing that precipitately until Ministers have had a full opportunity of considering all the implications.

Mr. Stodart: Will my right hon. Friend direct his particular attention to the advertisement which offers gift vouchers to those who buy cigarettes of a variety which I happened to see advertised last Sunday, since, having regard to the terms of the Report, this appears to be undesirable?

Mr. Bevins: Yes, Sir.

Mr. Fell: Will my right hon. Friend bear in mind that nobody is forced to smoke and that the advertisements do not force people to smoke? Will he assure the House that Her Majesty's Government will not follow the bad example of Italy in this matter?

Mr. Bevins: I do not happen to know what the example of Italy is, but I assure my hon. Friend that the Government will not jump to conclusions in this matter.

Television Sets and Licence Holders

Mr. J. Howard: asked the Postmaster-General what is his estimate of the number of television sets currently in use and what is the present number of television licence holders.

Mr. Bevins: Nearly 12 million combined sound and television licences were in force on the 31st March, 1962. No doubt more sets are in use, because some people have more than one set, and others illegally use sets without a licence.


How many of the latter there are I can not estimate, but I am continuously trying to reduce the number.

Mr. Howard: What steps are being taken to reduce the difference, by way of detector vans and so on, and can my right hon. Friend give an idea of how much revenue is being lost to his Department by pirates?

Mr. Bevins: We are continuously trying to track down cases of this sort. It is not possible to say how many people are evading the licence fee, but I can tell my hon. Friend that last year the Post Office launched about 13,000 successful prosecutions.

Emergency Radio Communications Service, Birmingham

Mr. Cleaver: asked the Postmaster-General whether he will allocate a frequency for the Emergency Radio Communications Service which is being pioneered in Birmingham by the Industrial Police Association.

Mr. Bevins: A two-frequency channel was assigned to this service in 1959. I am sorry that I cannot allot a channel to the service for their exclusive use because the demand for channels in the Birmingham area is so heavy.

Mr. Cleaver: Is my right hon. Friend aware that the channel which he has allocated is used by taxi firms and bulldozer contractors who carry on very long conversations which render the channel quite unsuitable for security purposes? In view of the satisfactory way in which the scheme started originally, ought not he to do something about it and go even further to try to extend it all over the country?

Mr. Bevins: I think there is a little misunderstanding here, because an exclusive channel does not guarantee secrecy from unauthorised listeners. There are similar security services in the Midlands with channels which they are also obliged to share. The fact is that there are simply not enough frequencies to enable small private mobile radio services of this kind to have exclusive channels of the kind my hon. Friend wants.

It is a hightly matter, and I shall be delighted to write to my hon. Friend to explain the matter in detail.

Oral Answers to Questions — TELEPHONE SERVICE

Kiosks, Scotland

Mr. J. Robertson: asked the Postmaster-General how many telephone kiosks he expects to instal during the current year; and what percentage of these will be made in Scotland.

Miss Pike: My right hon. Friend expects that about 1,200 kiosks will be installed during the current financial year, and that all of them will be made in Scotland.

Sedgefield

Mr. Slater: asked the Postmaster-General how many applications there now are from the Sedgefield parliamentary constituency for the installation of telephones; and what period such applications cover.

Mr. Bevins: In addition to applications under inquiry or in course of being met, 63 applications are on the waiting lists for the exchanges serving the Sedge-field constituency. Of these, 16 were received before 31st March, 1961, and 8 before 31st March, 1960.

Oral Answers to Questions — TECHNICAL CO-OPERATION

Voluntary Service Overseas (Grant)

Mr. Gardner: asked the Secretary for Technical Co-operation what was the annual grant by Her Majesty's Government to Voluntary Service Overseas in each of the financial years 1958–59, 1959–60, 1960–61, and 1961–62, respectively; and what annual grant is now proposed for 1962–63.

The Secretary for Technical Co-operation (Mr. Denis Vosper): In 1958–59, no help was asked for. In later years, grants have been and are being made as follows:






£


1959–60
…
…
…
11,000


1960–61
…
…
…
2,000


1961–62
…
…
…
17÷500




The amount for 1962–63 is under consideration.

Mr. Gardner: Is my right hon. Friend aware that, in the light of the wonderful work which is being done by Voluntary Service Overseas, these grants are lamentably small and that they come to £34,000 in all since 1959? Is my right hon. Friend aware that the American Government last year gave to the American Peace Corps, which was directly inspired by our Voluntary Service Overseas, 30 million dollars, and that this year that sum is likely to be increased to 60 million dollars? Will my right hon. Friend see whether the grant made by our Government cannot be increased in a similar way?

Mr. Vosper: I am in agreement with what my hon. and learned Friend says about the wonderful work of Voluntary Service Overseas, but this is one organisation in one aspect of overseas service. I have been having talks with all the voluntary bodies concerned, and I am having a further meeting tomorrow and will bear in mind what my hon. and learned Friend says.

Mr. Mayhew: Is the Minister aware that this organisation has tremendous possibilities for development, but that at the moment the bottleneck is finance? Will he bear in mind that Members on both sides of the House look to the Government to give a bigger lead in supporting this organisation?

Mr. Vosper: I have been having talks with all the voluntary bodies, and I am meeting them again tomorrow, when I hope I shall have something further to say.

Mr. Marten: Would not my right hon. Friend agree that it is a better principle to devote sums of money to this sort of thing and take off a little from some of the grants or loans which we give to these countries, so as to use this money to help people going out there rather than let these countries invest in something which may not be of such lasting value?

Mr. Vosper: Yes, but part of my task is to meet the requests of overseas countries for technical people, which cannot be met on a voluntary basis.

Oral Answers to Questions — LOCAL GOVERNMENT

Blyth (Loans)

Mr. Milne: asked the Minister of Housing and Local Government and Minister for Welsh Affairs what were the amounts spent on interest charges in repayment of loans by Bedlingtonshire Urban District Council, Seaton Valley Urban District Council and Blyth Borough in each of the years from 1951 to 1961.

The Minister of Housing and Local Government and Minister for Welsh Affairs (Dr. Charles Hill): As the Answer contains a number of figures, I will, with permission, circulate it in the OFFICIAL REPORT.

Mr. Milne: While I am grateful to the right hon. Gentleman for arranging to do that, may I ask him if he will take notice that at the moment these interest charges are having an adverse effect on the housing arrangements of these councils? Is he aware that it takes almost as much as the cost of three houses to pay the interest charges on one?

Dr. Hill: I note the hon. Gentleman's point, but the figures which he will find in the OFFICIAL REPORT Will reflect both the expansion of capital investment financed by loans as well as the interest rates.

Mr. Frank Allaun: Is the right hon. Gentleman aware that following the Bank Rate reduction there has been no reduction at all in interest charges which local authorities are having to pay? What does he propose to do about that?

Dr. Hill: The interest charges which local authorities pay are much more a matter of long-term borrowing, as the hon. Gentleman knows.

Mr. Emrys Hughes: Is the right hon. Gentleman aware that Switzerland is lending I.C.I. an immense sum of money—£5 million—at a lower rate of interest than that at which it can be borrowed in this country? Will he make arrangements for local authorities troubled about high interest rates to borrow from Switzerland?

Dr. Hill: I am grateful for the tit-bit of information which the hon. Gentleman gives.

Following are the figures*:


PAYMENTS OF INTEREST BY


Year
Bedlington-shire U.D.C.
Seaton Valley U.D.C.
Blyth Borough




£
£
£


1950–51
…
54,633
61,702
64,095


1951–52
…
59,356
66,175
71,967


1952–53
…
68,569
72,911
83,909


1953–54
…
78,797
80,164
104,454


1954–55
…
90,567
91,448
119,810


1955–56
…
102,972
103,388
135,506


1956–57
…
117,703
114,782
156,546


1957–58
…
143,648
119,708
167,836


1958–59
…
184,138
123,882
174,725


1959–60
…
208,005
127,876
179,810


1960–61
…
229,504
145,401
188,757


* Source— of Accounts.

Leicester Boundaries (Inquiry)

Mr. Farr: asked the Minister of Housing and Local Government and Minister for Welsh Affairs (1) what he estimates the total cost of the public inquiry into the boundaries of Leicester, commencing on 28th May, will be;
(2) how the cost of the public inquiry into the boundaries of Leicester, commencing on 28th May, will be apportioned between the Exchequer, Leicester city ratepayers and Leicestershire county ratepayers.

Dr. Hill: The greater part of the cost of the inquiry will consist of fees paid to counsel by authorities who choose to be so represented. Since these fees are matters for private arrangement, I am not in a position to estimate the overall cost of the inquiry. The general arrangement for such inquiries is that my Department bears its own costs, and the parties appearing at the inquiry bear theirs.

Mr. Farr: Is my right hon. Friend aware that there are many ratepayers and taxpayers in Leicester and Leicestershire who object to providing this fortnight's paid spree for the legal profession? [HON. MEMBERS: "Hear, hear."] Would not my right hon. Friend agree that, as it was the Government's Boundary Commission which in the first place rather like a bull in a china shop

initiated these proposals, possibly all the cost of the inquiry should be met from the Exchequer?

Dr. Hill: Whether an authority is represented by counsel or not is a matter for the authority. Indeed, in three major inquiries recently authorities were not so represented, but if authorities do decide to be so represented I think they should bear the cost.

Oxford Road Scheme

Mr Driberg: asked the Minister of Housing and Local Government and Minister for Welsh Affairs on what date he reached his decision on the Oxford Road scheme.

Dr. Hill: Shortly before the decision was issued on 15th March.

Mr. Driberg: In that case, was it not a providential coincidence that there was a Question down for Written Answer on Friday, 16th March—perhaps an arranged Question? In view of the very great interest in this matter, would it not have been better for the right hon. Gentleman to have told the House about it orally?

Dr. Hill: I gave the Answer as soon as possible after the decision. It was a providential arrangement that a Question was put down enabling me to give the Answer.

Mr. M. Stewart: When the right hon. Gentleman says that it was a providential arrangement, does he mean that he arranged it?

Dr. Hill: It was a matter of cooperation.

Mr. Driberg: asked the Minister of Housing and Local Government and Minister for Welsh Affairs if he will publish in HANSARD a summary of the various proposed solutions of the Oxford traffic problem, including Sir Roy Harrod's suggestion of a tunnel, together with his reasons for rejecting all those proposals which do not involve a road across Christ Church Meadow.

Dr. Hill: I would refer the hon. Member to the summary of Sir Frederick Armer's Report following the inquiry in December, 1960. Copies of the Report are available in the Vote Office. The


suggestion of a tunnel was dealt with in the evidence of the city council summarised in paragraph 55 of the report. My Department's letter of 15th March to the town clerk setting out the reasons which led to the conclusion in favour of the Meadow Road deals with the main factors affecting this and other possible solutions. I am sending a copy to the hon. Member and placing others in the Vote Office.

Mr. Driberg: Could the right hon. Gentleman say why, in his answer of 16th March, he said there was "no doubt" that the destruction of the Meadow was the most effective way of dealing with the problem? Surely there is doubt about it? It has been hotly argued for a good many years. Can he also say what he meant by
—any measures which will reduce the impact of the road "—[OFFICIAL REPORT, 16th March. 1962: Vol. 655, c. 200.]

Dr. Hill: I have said there was no doubt, because there was no doubt in the mind of Sir Frederick Armer, who reported, and in my own mind, for I had to reach the decision.

Sir G. Nicholson: How can my right hon. Friend say that there is no doubt about this matter? Is not he aware that his decision has caused a great deal of consternation? Would not he be prepared to agree that the beauties of Oxford should be held in trust for posterity? Whether this is necessary or not, to say that there is no doubt about it is a moot point. Will my right hon. Friend carry his responsibilities a little more seriously?

Dr. Hill: The word "doubt" was used in this connection. I said:
… there is no doubt that this is the most effective way to provide the relief so badly needed in the centre of the City and the University."—[OFFICIAL REPORT, 16th March, 1962; Vol. 655, c. 200.]
That I believe to be true.

Mr. Driberg: Could the right hon. Gentleman answer the second part of my supplementary question? What does he mean by "any measures which will reduce the impact of the road on the Meadow", in view of the fact that this Meadow is prized not only by Christ Church but by all the people of Oxford and by thousands of visitors?

Dr. Hill: One of the measures referred to was the sinking of the road, a matter left open for future consideration.

Local Government Reorganisation (Essex)

Mr. A. Lewis: asked the Minister of Housing and Local Government and Minister for Welsh Affairs whether he will make a statement about his recent discussions with a deputation from Essex councils concerning Her Majesty's Government's proposals for local government reorganisation.

Dr. Hill: I would refer the hon. Member to the reply I gave on 18th May to a Question about the boundary of Greater London from my hon. Friend the Member for Esher (Sir W. Robson Brown).

Mr. Lewis: Is the Minister aware that at no time during the last ten years have the Government ever had a mandate for these proposals and that at each by-election and council election, particularly the last one, the Government have lost the confidence of the people? Why are the Government intent on carrying out these proposals when they have no mandate for them? Will not the right hon. Gentleman leave them until after the next General Election to see whether the people support them?

Dr. Hill: When the Bill comes before the House, the hon. Gentleman, like other hon. Members, will have an opportunity of making his views known.

Mr. Ede: Will the Minister put somewhere in the House a map showing the effect of the alterations which he announced last Friday so that they can be checked?

Dr. Hill: Yes, Sir.

Oral Answers to Questions — HOUSING

Slum Clearance (Fit Houses)

Mr. McCann: asked the Minister of Housing and Local Government and Minister for Welsh Affairs if he is aware of the effects of Section 60 of the Housing Act, 1957, whereby tenants of a fit house in a clearance area are precluded


from payments in respect of well-main-tamed houses; and if he will introduce legislation to end this anomaly.

Dr. Hill: I assume the hon. Member has in mind the compulsory purchase of a fit house under slum clearance powers. The owner of a fit house receives market value compensation. A payment for good maintenance, which can be added to site value in the case of an unfit house, cannot therefore be made in addition.

Mr. McCann: Is not the Minister aware that when a well-maintained payment is made the local authority has the right to allocate the compensation between the tenant who has spent the money and the landlord, but that if the house is declared fit all of the money goes to the landlord thereby depriving the tenant of his rights? Does the right hon. Gentleman think that this is right?

Dr. Hill: What happens in the case of a fit house, which is set, like the hon. Gentleman's example, in the middle of a clearance area, is that what is paid is paid in the same way, and to the owner, as if the house were disposed of in the ordinary way.

Mr. McCann: The Minister is missing the point. Is he not aware that the local authority can make a well-maintained payment for an unfit house and give the whole of it to the tenant who has paid the money, but that if the house is declared fit the tenant who has paid the money loses all his rights because the money is paid to the landlord?

Dr. Hill: I will look into the hon. Gentleman's point, because he is right in saying that there is a mode of distribution for the good maintenance payment. The good maintenance payment cannot be paid in respect of a fit house bought at valuation in the ordinary way.

Excessive Rents (Compulsory Purchase)

Mr. Sorensen: asked the Minister of Housing and Local Government and Minister for Welsh Affairs how many applications have been made to him by local authorities in the Greater London area for the compulsory purchase of houses for which excessive rents have been demanded by landlords from sitting

tenants; on how many cases the applications have been refused; and if he will indicate the range in rent increases that led to those applications by local authorities.

Dr. Hill: Forty-seven compulsory purchase orders have been submitted for confirmation in response to Circular 45/60. Eighteen of them have since been withdrawn. Of the remaining 29 I have refused to confirm 12, but in five of these the rent was not in dispute.
On the last point, under the terms of the circular, what is necessary to justify compulsory purchase under Part V of the Housing Act, 1957, is that, as the result of exorbitant rents being demanded, tenants are in danger of becoming homeless.

Mr. Sorensen: Is the right hon. Gentleman aware that in my district and in other districts exorbitant rents are being demanded by property corporations? In one case in particular in my area rents have increased from £2 a week to about six guineas a week. May we have an assurance that the right hon. Gentleman will sympathetically consider any application made by the local council for the compulsory acquisition of property in this category?

Dr. Hill: A local council is fully entitled to make an order and to submit it in respect of cases covered by the circular. But the hon. Gentleman will appreciate that it is impossible for me to make any general statement which could be held to cover individual cases.

Mr. M. Stewart: Could the right hon. Gentleman answer more precisely the last point in my hon. Friend's supplementary question? We would then have a better idea of what the Government regard as an exorbitant rent.

Dr. Hill: May I take two typical examples in a recent application. It was proposed to increase the rent of a two-roomed flat from 28s. to 35s., an increase from 4÷5 to 5·6 of gross value, and to increase the rent of a three-roomed fiat from 30s. to 45s.

Mr. Sorensen: Would not the Minister agree that if a rent is treble what it was originally that is an extremely exorbitant increase?

Dr. Hill: The hon. Gentleman will appreciate that I am bound by the circular within existing law. Only when tenants are in danger of becoming homeless as a result of exorbitant rents is an application granted.

Land, Essex

Mr. Sorensen: asked the Minister of Housing and Local Government and Minister for Welsh Affairs what is the present average cost per acre of land acquired by local authorities for domestic building purposes in the extra-metropolitan districts of Essex, compared with similar costs in 1938, 1946, and 1952.

Dr. Hill: I am afraid that records of land cost have not been kept separately.

Mr. Sorensen: Surely the Minister has some sort of information on this very important aspect of housing. Surely he is aware that the cost of land for housing has increased constantly and is still increasing. Cannot he give some indication about how that affects building costs?

Dr. Hill: That is the breakdown which I do not have. A Question to the Chancellor of the Exchequer about the records of the Valuation Office might supply the answer.

Oral Answers to Questions — NATIONAL FINANCE

Richard Thomas and Baldwins Ltd.

Mr. Callaghan: asked the Chancellor of the Exchequer what are his intentions with regard to the sale of Richard Thomas and Baldwins' assets.

The Chancellor of the Exchequer (Mr. Selwyn Lloyd): I have nothing to add to previous statements on this matter.

Mr. Callaghan: To which of the previous statements has the Chancellor nothing to add? Is it the statement that the assets will be sold before the General Election, which was made by one Minister, or the statement that they will not be sold before the General Election, which was the statement made by Lord Mills?

Mr. Lloyd: Perhaps the hon. Gentleman will read what I said on 27th October, 1960. That, in particular, is

one of the statements to which I have nothing to add.

Mr. Callaghan: Is not the right hon. and learned Gentleman aware that there is a great deal of concern about the future of this enterprise in South Wales? Can he be clear about this? Is it the Government's intention to sell the assets of Richard Thomas and Baldwins Ltd. before the next General Election or at some time in the immediate future? People have a right to know the Government's plans on a matter of this sort.

Mr. Lloyd: With regard to the relationship of this sale with the next General Election, there is plenty of time. I understand that there need not be an election until October,1964. We have said again and again that our intention is that the concern should be de-vested, but when depends on the circumstances. I think that the important factor is to judge the time at which a fair price can be obtained, and that depends on the development plan, which is not yet completed.

Mr. M. Foot: Does the right hon. and learned Gentleman really think it fair to treat a great steel firm in this fashion? If it was proposed to nationalise a firm, would the Government leave it in doubt what was to happen? Surely the right hon. and learned Gentleman must be aware that his statement to which he referred the House was flatly contradicted by Lord Mills last year. Is it not a fact that the real reason why the Government will not state their intentions in public as Lord Mills stated them in private is that they are in a blue funk about what the hon. Member for Kidderminster (Mr. Nabarro) might say about them.

Mr. Lloyd: I do not accept what the hon. Gentleman says, nor do I understand his argument about uncertainty. Most of British industry, which is now in private hands, would be in a state of uncertainty in the dreadful event of the Socialist Party returning to power.

Mr. Peyton: Does not my right hon. and learned Friend agree that if Lord Mills said in private what the hon. Member for Ebbw Vale (Mr. M. Foot) thinks he said, then the hon. Gentleman should be the first to give three cheers for Lord Mills?

Mr. Lloyd: I understand that there was an Adjournment debate on that topic. I stick by what I said in October, 1960.

Mr. Jay: Is the Chancellor of the Exchequer aware that, under his policy, steel shares have fallen so much that most steel company shareholders are hoping for renationalisation?

Mr. Lloyd: That is the sort of very specious statement which the right hon. Gentleman would make.

Mr. Jack Jones: Is the Chancellor aware that this very well-run, nationally-owned concern is a revenue-earning concern? In view of the fact that he is putting 15 per cent. on kiddies' sweets to get money, he had better leave this concern alone so that he obtains the revenue which he wants for the nation from such a flourishing concern.

Mr. Lloyd: The fact is that the development programme has not yet reached maturity and the extent to which it is a flourishing concern cannot yet be determined.

Mr. Callaghan: As a result of these exchanges, are we to take it that the Government do not know when they will sell this company, that they still intend to sell it but are unable to reassure people working in the industry about their future, and that the only thing they are determined to do is to ensure that the £80 million of profit made for the nation shall be dissipated to the steel masters?

Mr. Lloyd: I do not accept at all what the hon. Member has said. We have stated our policy again and again. That policy has been confirmed by the electors again and again and we shall judge the time at which a fair price can be obtained.

Capital Investment, Hong Kong (Textile Industry)

Mr. D. Jones: asked the Chancellor of the Exchequer how much British capital is invested in Hong Kong; and how much of that amount is invested in the cotton textile industry.

The Financial Secretary to the Treasury (Sir Edward Boyle): I regret that figures of the total amount of

United Kingdom capital invested in Hong Kong are not available; the annual amount of direct investment by the United Kingdom in Hong Kong is of the order of £1–£2 million a year net. Figures of the annual amount of other private investment are not available, nor are any figures on the amount invested in the cotton textile industry.

Mr. Jones: Is the Minister aware that these figures ought to be available in view of the serious deterioration in the cotton textile industry? Is he further aware that I have a deep personal interest inasmuch as my constituency—Burnley—is most seriously affected? If these figures are not available, ought they not to become available so that we can see the extent of the effect upon our vital industry?

Sir E. Boyle: I assure the hon. Member that there are real difficulties about making these figures available, as was clearly shown in the relevant section of the Radcliffe Report. If the hon. Member wishes, I will send him the sections of the Radcliffe Report which point out the considerable magnitude and complications of the task of obtaining the figures.

Mr. S. Silverman: Will not the Minister further consider this matter? Is he not aware that if British capital is employed to any large extent in building up the cotton textile industry in Hong Kong, it is at the dire expense of a major industry in this country that is rattling fast to catastrophe? Is it not the Government's duty at least to ascertain the facts so that they may consider what their policy should be?

Sir E. Boyle: Certainly, within the limits of my previous supplementary answer, we will look at the question of these figures again, although there are real difficulties in the matter. The hon. Member's supplementary question raises, however, a general economic issue which is rather too wide to discuss at Question Time.

Sir C. Osborne: Can my hon. Friend confirm that the greater part of the money invested in the Hong Kong textile industry came from China and really came from the Shanghai-owned mills, and that competition with Lancashire is not a matter of how much


capital there is there but how quickly it is turned over and use is made of it in the two respective countries?

Sir E. Boyle: I cannot answer the first part of that supplementary question without notice. With regard to the second part, there is a good deal in what the hon. Member says.

Mr. W. R. Williams: Reverting to the lack of information, would it not have been necessary for the Prime Minister to have this information available before he met the leaders of the textile industry last week to discuss the future of the cotton industry with them?

Sir E. Boyle: There is no desire on the part of the Government to hide these matters. Some figures have been published for past years by the Board of Trade. The figures are necessarily incomplete and, as I have said, the Radcliffe Report has explained the great difficulty of obtaining precise figures when one is considering a census of assets overseas owned by British companies. We will do our best, but this is a more difficult matter than hon. Members opposite suppose.

EUROPEAN ECONOMIC COMMUNITY

Ql. Mr. Wyatt: asked the Prime Minister whether he will arrange a meeting with Chancellor Adenauer and President de Gaulle in order to overcome objections currently raised by West Germany and France to Great Britain's entry into the Common Market.

The Prime Minister (Mr. Harold Macmillan): No, Sir. Negotiations in Brussels are proceeding in accordance with the agreed programme.

Mr. Wyatt: Is not the Prime Minister concerned by the fact that both President de Gaulle and Dr. Adenauer have recently made very slighting references to the British prospects of joining the Common Market? Would it not be as well to try to clear the ground, because there is obviously a great difference between what their officials are saying and what the heads of the respective countries are thinking?

The Prime Minister: No. The negotiations are proceeding according to the

programme. I am having the opportunity of seeing President de Gaulle in a week or two's time and, naturally, this subject may be discussed. By far the best thing is to proceed with the negotiations, which are going along as we expected.

Mr. Pentland: Is the Prime Minister aware that it is being extensively publicised in the national Press that as a result of the position adopted by President de Gaulle Her Majesty's Government have now reached a critical stage in the negotiations concerning the Commonwealth? Therefore, will the Prime Minister tell us whether it is his intention when he meets President de Gaulle to make it clear that he is not prepared in any circumstances to move away from his original position of seeking full safeguards for the Commonwealth countries?

The Prime Minister: That is what the negotiations are about.

NUCLEAR TESTS

Mrs. Castle: asked the Prime Minister whether he will request President Kennedy to make available to Her Majesty's Government the evidence, in the possession of the United States Government, on the basis of which the American seismologist, Professor Lewis Don Leet, claims that he has discovered a fool-proof method of detecting underground nuclear tests in order that Her Majesty's Government's scientific advisers may study it.

The Prime Minister: There are regular exchanges of information between Her Majesty's Government's scientific advisers and those of the United States Government. The United States and British Governments have spent a great deal of time and money over many years in an attempt to find a satisfactory method of detecting and verifying underground tests, so they are naturally disposed to study hopefully any claim by a reputable scientist that the problem has been solved.
The Government's scientific advisers will study any evidence made available by Professor Lewis Don Leet.

Mrs. Castle: Is the Prime Minister aware that if Professor Don Leet's claims


are correct, the differences between the Soviet Union and the West on inspection can be resolved and a test ban treaty negotiated? Is he not aware that the Russians are about to resume another round of tests and that we all deplore this? Will he not, therefore, urge both the Russians and the Americans to postpone all further tests until Professor Don Leet's claims have been tested?

The Prime Minister: No, Sir. We have not any detailed information, and this may be an interesting addition to the scientific knowledge on this subject, but, of course, the fundamental problem remains of how, when a challenge is made, it is to be resolved.

Mr. Grimond: Is the Prime Minister advised that simply by underground testing any nation can make such an overwhelming advance as to alter the whole balance of power without testing in the air?

The Prime Minister: We have tried this in various ways. First, we suggested a ban on atmospheric tests. The Russians rejected that and said that they could accept only a complete ban. We replied, "All right, let us study how to have a complete ban". Then they said," We will not deal with the problem of underground tests when they are thrown up". And so we are still working. I do not consider it a fair picture to suggest that the British and Americans are the people who have held this up. We have done everything we can to be as flexible as possible.

Mr. Gaitskell: Reverting to the claim by Professor Lewis Don Leet, can the Prime Minister say whether this is now being examined by the United States Government's scientists and whether our own scientists have yet been consulted on the matter?

The Prime Minister: I am having it looked into by our own scientists.

Mrs. Castle: Is the Prime Minister aware that Professor Don Leet claims to have 90 per cent. certainty of detection at 1,500 miles from the point of explosion, 95 per cent. certainty a little nearer and 100 per cent. a little nearer still? Does not this mean, therefore, that what the Prime Minister is insisting upon in the way of inspection is not

necessary and that the world could be relieved of the shadow of these terrible tests if every effort were made to take these claims seriously and to stop tests in the meantime?

The Prime Minister: No, Sir, I do not accept that as a fair representation of what we have been trying to do. We are perfectly ready to look at this or any new discovery. The problem still remains that when something has happened and it is not certain whether it is from artificial or natural causes, there is still the need to make an on-site inspection. It may be that that problem will be overcame, but even that stands upon the ipse dixit of the country. What happens if we say to a country, "Our scientists say you have made a test" and that country replies, "No, we have not"? There must be some agreed method by which the job can be done.

Mr. Shinwell: asked the Prime Minister whether he has studied the further evidence sent to him by the hon. Member for Easington in regard to the radioactive fall-out consequent on the forthcoming atomic tests; and if he will call for a further examination of the problem by his scientific advisers in the light of this evidence.

The Prime Minister: The right hon. Gentleman sent me a letter signed by a number of biologists which appeared in the Press last week. This letter contained no evidence about the effects of fall-out which has not already been published by the Government. These matters remain under continuing examination by the Government's scientific advisers.

Mr. Shinwell: As Professor Wadding-ton and his friends are eminent biologists, does not this indicate a conflict of opinion about radioactive fall-out? In the circumstances and in view of that conflict of opinion, would it not be advisable for the right hon. Gentleman to submit Professor Wadding-ton's letters, and any additional evidence that he may care to put forward, to his scientific advisers and then inform the House about their conclusions?

The Prime Minister: No doubt our scientific advisers are fully conversant with these views. It all comes down to one point. Of course we deplore these tests, and of course we want to bring


them to an end. The only question is the balance of duty, and it is a hard duty to decide whether in the interests of defence and the situation in which we found ourselves a few weeks ago we must agree with our American friends to continue the tests or whether we should not do so. We have debated this matter, and we have discussed it. [HON. MEMBERS: "Not here."] We have discussed it in Question and Answer. I have made my statements, and I understand that it can be debated in two days' time.

Mr. Shinwell: Will the right hon. Gentleman appreciate that I raised not the question of tests but the question of the consequences of tests, and that all I am asking—I think it is a perfectly reasonable submission—is that his scientific advisers should take note of any evidence that Professor Waddington, an eminent biologist, can adduce?

The Prime Minister: Yes, Sir; of course we will do that. I will see that the evidence is studied by those whose duty it is to advise me.

INTERNATIONAL CONFERENCES (PARLIAMENTARY DELEGATES)

Mr. A. Lewis: asked the Prime Minister if he will state on what basis Members of Parliament are selected to attend the Council of Europe at Strasbourg and other international conferences; and what action he takes to ensure that these visits are shared among all Members.

The Prime Minister: As I said in reply to my hon. and gallant Friend the Member for Lewes (Sir T. Beamish) on 19th April, I am responsible for the appointment of the delegation from the United Kingdom Parliament to the Consultative Assembly of the Council of Europe and the Assembly of Western European Union. I also said that the appointments of Labour and Liberal representatives and substitutes had been made on the basis of nominations by the leaders of those parties.
The selection of delegates to conferences of the Inter-Parliamentary Union and of the Commonwealth Parliamentary Association is organised by those bodies.

Mr. Lewis: Is the Prime Minister aware, with regard to the conferences for which he is responsible, that it is very often the same little group that have been circulating these visits among themselves on both sides of the House over the past few years? Is he aware that there are many hon. Members, excluding myself, who have been here for 20 years or more and have never been on any of these visits, and they feel it is about time that these visits were shared out not on the basis of giving them to the yes-men of either party, but in a way to give all hon. Members a chance to take part in such proceedings?

The Prime Minister: I have great sympathy with the hon. Gentleman's point of view, but I do not see how I am to resolve my difficulties. I have the duty of appointing these delegates. It seems to me not unnatural to ask the leaders of the parties to make their appointments, and so far as my party is concerned, I make my own. We might, of course, do it by some other method, such as ballot, but so far I do not think that what I have tried to do has been regarded as unfair by the parties in the House. I am only trying to carry out what has seemed to me to be my duty.

Mr. Bellenger: Can the Prime Minister say whether he is responsible, or whether the usual channels are, for the selection of those small groups of favoured Members of Parliament who seem to be constantly going to the other side of the Iron Curtain?

The Prime Minister: I should like to be consulted, but I have not been up to now. I do not know whether the Leader of the Opposition has.

Mr. Jeger: Would the Prime Minister bear in mind that these international gatherings to which perhaps a score of countries send their representatives offer an unrivalled opportunity for political contact-men to exercise their influence and tout for contracts on commission? Would he, therefore, exercise the greatest care when making his selections and bring the same influence to bear on the leaders of the other parties?

The Prime Minister: I think it would be more in accordance with the traditions of this House if the hon. Member, when having a charge to make, made it directly and not by innuendo.

Mr. Jeger: Is the Prime Minister not aware that these charges have already been made and published in the Press and not denied?

Mr. Shinwell: Why does not my hon. Friend prove them?

Mr. Lewis: On a point of order, Mr. Speaker. Can you advise hon. Members generally and myself in particular what the position is with regard to jibes and innuendoes which are constantly made by my hon. Friend the Member for Goole (Mr. Jeger)? He is making innuendoes which are not true. He knows them to be untrue. Yet these things are continuously said. Would it be in order for me to say that my hon. Friend is earning money by being the manager of a striptease theatre? It happens to be the case that my hon. Friend is the manager of the theatre which introduced striptease to England. Surely that is not a question which should be raised on the Floor of the House?

Mr. Speaker: In so far as this involves a point of order, to make imputations against the private characters of hon. Members, particularly in a question, is out of order, but if it is put in a general form I cannot so rule it because I do not know to whom it is attached. If the hon. Member was naming another hon. Member to make the kind of imputation which he suggested, I should be obliged to rule about it.

Mr. Jeger: On a point of order Mr. Speaker. I was named by my hon. Friend the Member for West Ham, North (Mr. A. Lewis), who referred to me as having introduced striptease to Britain. I am not sure where he got his facts. I did not introduce striptease to England. Nor am I the manager of a striptease theatre.

Mr. Speaker: In no circumstances, even if irregular imputations were made, would this be the right moment to debate the matter or argue about it. I suggest to the House that we should get on with our Questions.

Mr. Gaitskell: I leave those personal exchanges, Mr. Speaker, and come back to the original Question. Is the Prime Minister aware that with regard to nominations from this side of the House, far from the people being exactly the same

every year, they are changed regularity every two years? In fact, we continually get complaints because we do not keep delegates on long enough.

The Prime Minister: This is a rather difficult problem, but I should have thought that on the whole we try to combine a certain degree of continuity, which is valuable in these European Assemblies where friendships are made and contacts of important kinds are maintained, with a reasonable degree of variation. That is what I think all of us try to do in making our nominations.

THAILAND

Mr. Rankin: asked the Prime Minister what consultations Her Majesty's Government had with the co-Chairman of the 1954 Geneva Conference before agreeing to send troops to Thailand.

The Prime Minister: None, Sir. The present—

Mr. Rankin: On a point of Order, Mr. Speaker. The Question as printed refers to "co-Chairman". It should be" co-Chairmen".

The Prime Minister: Despite that vital correction, my Answer will not be seriously affected. None, Sir. The present Geneva Conference is concerned with the settlement of the Laotian question. As I said in the House on 17th May in reply to a Question from the right hon. Gentleman the Leader of the Opposition, the objective of our Air Force contingent, if it is sent to Thailand, will be to defend that country if it is attacked. That is quite a different matter from the subject of the Geneva Conference and the question of consulting the Soviet co-Chairman of that Conference did not arise.

Mr. Rankin: Would not the right hon. Gentleman agree that the 1954 Conference devised a formula Which would have brought peace and security to South-East Asia, but that it seemed to be retarded because too many troops came in to spoil the broth, particularly from the West? Would it not appear that Thailand, too, is now of the view that she does not want more troops? Would


the right hon. Gentleman therefore not reconsider his offer to send British forces to Thailand.

The Prime Minister: No, Sir. Our offer and the offers of Australia and New Zealand have been a stabilising influence. Whether those offers are accepted or not rests with the Thai Government, and I have made that clear. I am not without hope that, after many disappointments, we shall make some advance towards what we are trying to do, which is to get a settlement by the creation of a neutral Government. We hope by that means to keep Laos a neutral country.

Mr. Gaitskell: Can the right hon. Gentleman say whether any proposal has been made by Her Majesty's Government to the Soviet Government that the International Control Commission should examine the facts of the breaking of the cease-fire? Can he also say whether or not it is possible for the Geneva Conference itself to consider again the situation in Laos with a view to obtaining the settlement mentioned by the right hon. Gentleman?

The Prime Minister: We have, of course, considered reconvening the Conference, but I am not sure that that would be the best thing to do at the moment. The Conference did reach a conclusion, and it was very satisfactory that it did. The difficulty has been to implement the conclusion, which was to try to set up a neutral Government representing these various sections, and that is what we are trying to do. If we can succeed, we shall have succeeded in carrying out the purpose of the Conference.

Mr. Gaitskell: Would the right hon. Gentleman answer my Question about the Control Commission?

The Prime Minister: The International Control Commission's duty is to try to re-establish the cease-fire. We have been in touch with the Governments concerned, and we hope that this will be possible to achieve. By far the best thing would be if the conference which I believe is now going to take place succeeded in making the new Government. Then I think we would have done far the best thing to settle things in that part of the world.

Mr. Rankin: In view of what the Prime Minister has just said, does it not seem that the Conference is a far more important matter than sending troops which, it would appear, Thailand does not want? Would he therefore not reconsider sending them from the point of view that it would be a better contribution to the Conference and to peace to keep the troops here?

The Prime Minister: This was an offer of troops for which the Thai Government are grateful, and they will decide whether to take it up or not.

HONG KONG (CHINESE IMMIGRANTS)

The following Question stood upon the Order Paper:

38. Sir W. TEELING: To ask the Secretary of State for the Colonies why Chinese refugees from the mainland are being refused entry to Hong Kong; and if he will make a statement.

The Secretary of State for the Colonies (Mr. Reginald Maudling): I will, with permission, Sir, answer Question No. 38.
Restrictions are necessary because there is a limit to the number of immigrants from mainland China that Hong Kong can now absorb, while there is virtually no limit to the number of Chinese who may seek entry. More than 1 million Chinese have entered Hong Kong in the past twelve years, and with a total population of 3·2 million, Hong Kong is very overcrowded. Nevertheless, about 60,000 still enter the Colony, legally or illegally, every year.

Sir W. Teeling: In thanking my right hon. Friend for that statement, may I ask whether he can suggest what can be done for these refugees? One million—or as many of them as are coming out—is surely a very small proportion of 600 million. Is it not possible that there may be some political meaning in this sudden rush? Is it not possible that the idea is to drive in a kind of Trojan horse to try to get some Communists into Hong Kong and cause further trouble there?
Formosa already had a population of 5 million, which has increased to 11 million over the last ten years. Surely


it is impossible to get many more there. Again, they would be Communists going to an anti-Communist country. Can my right hon. Friend do anything internationally, through Geneva or through America?

Mr. Maudling: This is a difficult problem. It is hard to be certain what the reason is. Very few other countries have so far shown any particular desire to receive large numbers of Chinese, and the Hong Kong authorities have done extremely well. Whatever may happen in the future, we must have effective control of the numbers coming into Hong Kong.

Mr. G. M. Thomson: Whilst we appreciate the difficulties of Hong Kong in this matter, is the right hon. Gentleman aware that there is a great deal of concern that so many refugees wishing to leave China, for whatever reason, should have to be turned back? Will he therefore take up with the American Government, perhaps through the United Nations, the question whether something could not be done to provide a place for more of these refugees to go, and also perhaps to provide some of the food surpluses in the developed parts of the world to help to alleviate the famine conditions in China?

Mr. Maudling: Those are wider questions. The trouble is that the potential numbers are so colossal. Whatever happens in the future, we must be absolutely certain of having control of immigration into Hong Kong.

Mr. Ridsdale: Is there any evidence of malnutrition among the refugees?

Mr. Maudling: I understand that there is very little evidence of malnutrition.

Mr. Grimond: The performance of Hong Kong in this respect has been quite remarkable, and deserves the thanks of the civilised world. Can the right hon. Gentleman give us an idea of the number of Chinese now going through Hong Kong, where they are going, and whether America has suggested taking any of them in America itself?

Mr. Maudling: I am grateful to the right hon. Gentleman for what he has said about the Hong Kong authorities. He is perfectly right in his tribute. At the moment, the permitted number is

50 a day and any numbers in excess of that we are holding up and turning back. Very few other countries have shown any inclination to receive substantial numbers of Chinese.

Dame Irene Ward: For a long time we have been led to believe that famine has, so to speak, been eliminated from China, so before we decide on what we can do to help if the people are really hungry, can we have a factual statement as to the food situation inside China?

Mr. Maudling: I am not sure that even the Chinese Government are quite certain about that.

Miss Lee: Would the right hon. Gentleman keep in mind that although there is doubt about the extent of famine or otherwise in China, doubt about the degree of malnutrition among the refugees and doubt about whether there is any political motivation, there is no doubt that these refugees are in very great distress? Will he make all possible representations to other Western Governments, beginning with the United States Government and our own, to see that the maximum help is given to them, and also bear in mind that we could turn a very awkward situation into an opportunity for the West if we showed that kind of humanist reaction to the situation?

Mr. Maudling: I think that the reaction of Hong Kong has been humanist, but it would not be humanist to accept a flood of people for whom one could not care. Our first contact must be with the Chinese authorities. It is hard to know precisely what is the significance of this development, and how long it will last.

Mr. S. Silverman: Can the right hon. Gentleman give any information about the alleged refusal of the United States to sell its surplus wheat to China for hard international currency? If this attitude were changed, might it not have an effect on the flow of refugees? Moreover, would the right hon. Gentleman explain why, since it was so morally wrong to build a wall in Germany to keep refugees in, it is right in Hong Kong to build a wall to keep them out?

Mr. Maudling: The question of American wheat sales is not for me, and, in any case, it could have no effect on


the immediate position. There is nothing particularly moral in allowing a vast number of refugees to swamp a Colony which is already overcrowded.

Mr. Gaitskell: Has the right hon. Gentleman really no idea why this flood is coming in suddenly? Is it not possible to find out what is happening from those allowed through? Have we any information from our Mission in Peking?

Mr. Maudling: The policy of the Chinese border guards has changed, and that is well known to us. I think that the policy of the Chinese Government and the motives for their actions are no better known to the individual Chinese than they are known in Hong Kong.

DIVISION No. 194, 21st MAY (CORRECTION)

Mr. Rankin: On a point of order. I find, on consulting today's House of Commons Papers, Mr. Speaker, that in Division No. 194 I have been registered as voting Tory. I trust that in due course this deep wrong will be rectified.

Mr. Speaker: I am obliged to the hon. Member for Glasgow, Govan (Mr. Rankin) for mentioning the matter. A correction will be evident in tomorrow's issue of the OFFICIAL REPORT. It will be corrected in the bound volume and an erratum slip will appear with the appropriate Division List.
It is highly mysterious, because HANSARD prints the list from exactly the same information as that from which the Division List is printed. HANSARD got it right and had the hon. and learned Member for Epsom (Mr. Rawlinson) in the place, in this instance, apparently occupied by the hon. Member for Govan. I regret the mistake. It will be corrected.

STANDING COMMITTEE B (SITTINGS)

Mr. Loughlin: On a point of order. I wish to raise with you, Mr. Speaker, a matter of importance to some hon. Members, perhaps of greater importance than it appears on the surface because of the increasing tendency of

the Government to insist upon additional sittings of Standing Committees. Perhaps hon. Members will see the significance of that in a moment. I have informed the Minister of Power and the Chairman of the Standing Committee concerned that I was raising this matter with you.
In Standing Committee B we are dealing with the Pipe-lines Bill [Lords] and this morning we passed a Motion which calls upon the Committee to sit on Tuesday mornings, Tuesday afternoons at four o'clock and on Thursday mornings. The effect of the Motion is that the Committee is due to begin its proceedings for the afternoon session at four o'clock this afternoon. Some hon. Members were not present at this morning's meeting because of other parliamentary duties, and the House will readily accept that on some occasions even the most attentive Members are unable to get to Committee meetings.
I raised with the Chairman of the Standing Committee and the Minister the position in which those Members found themselves. They were called upon, almost on the spur of the moment, to attend a meeting at four o'clock this afternoon without having what I regard as due and adequate notice of the meeting. I received from the attendants of the House a notice of that meeting, which was handed to me at three minutes to two o'clock today. I may have received early notification, or late notification, but it is a gross abuse of the procedure of the House to expect hon. Members to attend Committee meetings at one or two hours' notice.
There is one other additional factor about which I should like your Ruling. The Standing Committee is discussing Amendments in the names of my hon. Friend the Member for Ashfield (Mr. Warbey) and my hon. Friend the hon. Member for Deptford (Sir L. Plummer). In fairness to the Committee, both those hon. Members ought to be present this afternoon. But it so happens that Amendments in the names of those two hon. Members are being discussed in Committee on the Finance Bill on the Floor of the House this afternoon, immediately we go into Committee. It is physically impossible for those two hon. Members to do both jobs. The


issue is whether they have a responsibility to their constituents to participate in discussion of the Finance Bill, which is the most important Bill to come before the House in the course of a Session, or go to the Standing Committee.
These difficulties were explained to the Minister concerned, but he could not care less. It is incumbent upon hon. Members to safeguard themselves against abuses by the Executive and I ask you for your Ruling, especially on the question of adequate notice of the meeting of a Committee.

Mr. Warbey: I support the submission of my hon. Friend the Member for Gloucestershire, West (Mr. Loughlin) as one of the two hon. Members who are personally involved in a particular difficulty arising out of this situation.
As my hon. Friend has said, my hon. Friend the Member for Deptford (Sir L. Plummer) and I have our names to an Amendment which is now before Standing Committee B and on which discussion will be resumed in a quarter of an hour. The hon. Member for Deptford and I also have our names to Amendments which are under discussion in Committee of the whole House on the Finance Bill. We started discussing those Amendments last evening and the Committee adjourned until today. We shall be asked to resume discussion on those Amendments in a few moments.
Can you tell us, Mr. Speaker, how it is possible for two hon. Members, who are called to attend two Committees meeting at precisely the same time in order to move and discuss and divide on Amendments which are being considered by those Committees simultaneously, both raising matters of considerable constitutional importance, to perform their duty to their constituents?

Mr. Speaker: I rule on the only point of order which I can see to arise, and which is the adequacy of notice. I do not officially know what happens in Committee, but I understand that the Committee reached its decision about afternoon sittings at about twelve noon. So far as the Officers of the House are concerned, notice of that decision was available from 12.30 onwards. I do not think that we could do it better than

that. There would be no irregularity involved in notice in those circumstances.
Hon. Members will appreciate that the rest of what has been said does not produce any point of order for me. I would have added on the question of notice that although I do not know officially what happened, it would rather appear that the question of having these afternoon sittings began to be discussed in the Committee last Thursday, so that members of the Committee following the matter might have had a hint that it would be going on today. I might be wrong about that. The essence of the point for me is about giving notice as early as possible. That I have done. For the rest, there is no appeal to me from the decision of the Committee which ought to have taken these matters into account before reaching its decision.

Mr. T. Fraser: I think that the question of notice is a matter for the House as a whole, Sir. On Thursday of last week, the Minister proposed that we should meet on Tuesday afternoons, and last Thursday evening a notice was sent out to every member of the Standing Committee originally intimating that the Committee would meet this morning at half-past ten and this afternoon at four o'clock. But before the notice was sent out last Thursday, the authorities of the House had perforce to score out the information that we would meet at four o'clock this afternoon, so that every member of the Committee really got an intimation last Friday that the Committee would not meet at four o'clock this afternoon, because the reference to four o'clock was scored out in red ink.
This morning we continued with a discussion which terminated at about twelve o'clock, by which time the Committee had decided that it would meet again at four o'clock. The Motion did not say four o'clock this afternoon, but merely four o'clock on Tuesday afternoons.
I submit that as a notice had to be printed after that and was, in fact, delivered by hand to those who were available within the Palace of Westminster at two o'clock, hon. Members who were not within the Palace at that time have not had adequate notice of this meeting at four o'clock this day.
If a Committee decides in the forenoon to sit in the afternoon of that day, I think that it would be in accordance with the dignity of the House and of Standing Committees if the afternoon sitting took place the following week and not in the afternoon of the day in which the decision was taken, so that hon. Members might have timely notice of the intentions of the Committee.

Mr. Speaker: I am obliged to the hon. Gentleman. I hope that he will not confuse my function with those of others in this context. I think I rightly say that as far as Officers of the House under me are concerned the most adequate notice possible was given. I do not think that anybody could dispute that. The decision was taken at twelve noon, and the notification was given as soon as possible thereafter. We could not do better.
I think that the other argument which the hon. Member was putting to me would be more properly addressed to the Chairman in Committee as a ground for adjourning when the Committee meets this afternoon. I cannot, because it would not be proper to do so, express a view about the merits of the case.

Mr. Loughlin: I should like to make it plain, Sir, and I ought to have done before, that I did not intend to cast any reflections on the action of the Officers of the House. They got the information out more speedily than I would have expected them to do in the circumstances.
The point that I want to reinforce is that made by my hon. Friend the Member for Hamilton (Mr. T. Fraser), that it is an abuse of the proceedings of the House for a Minister to insist on a

Committee meeting when it is possible that some members of the Committee will not be available.

Mr. Speaker: Order. The interests of the House in general must be considered. The hon. Gentleman has made his point, which has been heard. This is not a matter on which I can assist him.

Mr. S. Silverman: Without wishing to press the matter too hard, has it not always been the custom of Committees when they decide, contrary to the normal practice, to meet in the afternoon, to make the decision operative only at the succeeding meeting of the Committee and not on the day when the decision is taken, precisely to avoid this embarrassment?

Mr. Speaker: I cannot purport to have any knowledge of the practice of Standing Committees. I think that that goes back to the suggestion I made to the hon. Member for Hamilton (Mr. T. Fraser).

NEW MEMBER SWORN

Hugh Emlyn Hooson, esquire, for Montgomery.

BILL PRESENTED

JAMAICA INDEPENDENCE

Bill to make provision for, and in connection with, the attainment by Jamaica of fully responsible status within the Commonwealth, presented by Mr. Maudling; supported by Mr. Sandys and Mr. Iain Macleod; read the First time; to be read a Second time Tomorrow and to be printed. [Bill 117]

Orders of the Day — WAYS AND MEANS [21st May]

INCOME TAX AND PROFITS TAX (PENALTIES AND ASSESSMENTS)

Resolution reported,

That it is expedient to make further provision as to the operation of Part III of the Finance Act, 1960, with reference to happenings before the commencement of that Act.

Resolution read a Second time.

Question, That this House doth agree with the Committee in the said Resolution, put forthwith, pursuant to Standing Order No. 86 (Ways and Means Motions and Resolutions), and agreed to.

Instruction to the Committee on the Finance Bill that they have power to make provision therein pursuant to the said Resolution.

FINANCE BILL

Further considered in Committee [Progress, 21st May].

[Sir WILLIAM ANSTRUTHER-GRAY in the Chair]

Clause 9.—(CHARGE TO INCOME TAX AND PROFITS TAX.)

Amendment proposed: In page 10, line 27, leave out subsection (2) and insert:

(2) In respect of tax chargeable by virtue of this section there shall be allowed relief, called "lapse of time relief", in accordance with the provisions of the Schedule (Charge on gains from acquisition and disposal: lapse of time relief) to this Act.—[Mr. Mitchisonl]

Question again proposed, That the words proposed to be left out, to "three" in line 29, stand part of the Clause.

3.56 p.m.

The Chairman: We are discussing together with this Amendment the following Amendments: in page 10, line 29, to leave out "three" and to insert "two"; in line 29, to leave out "three" and to insert "ten"; in line 31,

to leave out "six months" and to insert "five years"; and the proposed new Schedules:

CHARGE ON GAINS FROM ACQUISITION AND DISPOSAL: LAPSE OF TIME RELIEF

1. In this schedule the word "year" means a period of twelve calendar months and also includes an incomplete year immediately before disposal.

2. The gain accruing from the acquisition and disposal of a chargeable asset, being gain taxable under section nine of this Act, is divided by four times the number of years between acquisition and disposal and the quotient so obtained is hereinafter called a "taxable unit".

3. A number (hereinafter called "the taxing number") is computed by reference to the period between the acquisition and the disposal of the chargeable asset, that is to say, by adding—

(a) in the case of a chargeable asset consisting of land,

(i) the number four for each of the first three years after acquisition,
(ii) the number three for each of the fourth and fifth years after acquisition,
(iii) the number two for each year after acquisition from and including the sixth year to and including the tenth year,
(iv) the number one for each year after the said tenth year, or

(b) in the case of any other chargeable asset,

(i) the number four for the first year after acquisition,
(ii) the number three for the second year after acquisition,
(iii) the number two for each of the third, fourth and fifth years after acquisition,
(iv) the number one for each year after the said fifth year.

4. The tax chargeable in respect of the said gain shall be the tax on the taxing number of taxable units and the relief (in the Act called "lapse of time relief") shall be the difference between the tax so chargeable and the tax which would have been chargeable on the gain if this schedule had not been enacted.

CHARGE ON GAINS FROM ACQUISITION AND DISPOSAL: LAPSE OF TIME RELIEF

1. In this schedule the word "year" means a period of twelve calendar months and also includes an incomplete year immediately before disposal.

2. A percentage of any gain accruing from the acquisition and disposal of a chargeable asset, being gains taxable under section nine of this Act, shall be disregarded for all the purposes of Chapter II of this Act other than the furnishing of information; and the percentage so disregarded is in that Chapter called "lapse of time relief".

3. The percentages to be so disregarded shall be those set out in the following Table:—


TABLE


Years between acquisition and disposal
Percentage where the disposal is of land
Percentage in any other case


1
Nil
Nil


2
Nil
12½


3
Nil
25


4
5
30


5
10
35


6
15
40


7
20
45


8
25
50


9 and 10
30
55


11 to 13
40
60


14 to 16
45
62½


17 to 20
50
65


21 to 25
55
67½


26 to 30
60
70


31 to 40
65
72½


41 to 100
70
75


over 100
75

Before calling the hon. Member for Cardiff, South-East (Mr. Callaghan) to continue the debate, I must make one point clear regarding the separate Divisions which were promised on the Amendment in the name of the hon. Member for Brierley Hill (Mr. Talbot), that in the name of the hon. Member for Enfield, East (Mr. Mackie), and the Amendment in line 31, if the Committee so desires. We shall have no difficulty in having a Division on the Amendment to line 31, but the position regarding a separate Division on the Amendment to line 29 in the name of the hon. Member for Enfield, East is not so easy, because that will depend on whether the Amendment in the name of the hon. Member for Brierley Hill is moved or not.

If the Amendment in the name of the hon. Member for Brierley Hill is moved and a decision is taken, with or without a Division, in the sense that the word "three" should stand part of the Clause, then we cannot immediately proceed to another Division on that identical question of the word "three" standing part of the Clause. It would mean that the Amendment in the name of the hon. Member for Enfield, East could not, in that event, be called for a Division. The fate of this Amendment is, therefore, dependent on what may or may not happen to the first Amendment to line 29, which may, in fact, not be moved at all, according to what is intended.

Mr. John E. Talbot: Arising out of your statement, Sir William, may I say that I would have no wish to press the Amendment in my name to a Division, and that at the appropriate time I shall ask leave to withdraw it or have it negatived.

The Chairman: I take it that the hon. Gentleman does not wish to move his Amendment, and I think that this will meet the convenience of the Committee.

Mr. James Callaghan: In resuming the debate I should like, first, to thank the Chancellor of the Exchequer for introducing into the Bill Clauses which give us the opportunity of discussing a capital gains tax because, as the right hon. and learned Gentleman truly said, his tax is not a genuine capital gains tax. It is a political gesture designed to appease certain people in this country, which it has entirely failed to do. It bears no resemblance at all to a strict capital gains tax.
The Amendment proposes to substitute for this imitation in the Bill a genuine capital gains tax. I hope it is clearly understood that that is our intention. We believe that this presents an opportunity for broadening the tax base by taxing a number of transactions which yield a substantial profit, which at present yield no revenue at all to the nation, but which provide an adequate reservoir of taxable capacity.
We see no reason at all, on grounds of morality or expediency, why such transactions should not yield some revenue to the nation if it is administratively possible to arrange this. I should like to hear what philosophical objections there are to the notion that any income in anybody's hands, no matter how derived, provided that it can be administratively collected, should not, if it is equitable, yield something to the Revenue for other purposes.

Mr. Frederic Harris: Does that mean that the Labour Party would definitely tax pools wins?

4.0 p.m.

Mr. Callaghan: It is remarkable—and perhaps a sign of guilt—that hon. Members opposite should, now for the third time in the couple of hours' debate we


have had on this subject, seek to turn the whole of the discussion away from the tax of genuine capital gains into a discussion about football pools where they hope to play on the fear of the small investor so that by throwing out the proposed tax they might be left to their gains. If the hon. Member for Croydon, North-West (Mr. F. Harris) will possess his soul in patience and remain in the Chamber, he will find that I shall come to that point later.
It seems typical of the approach made by the Conservative Party throughout the whole debate that the first question, almost the only question, they have asked is not how we should deal with the vast profits arising out of land speculation and the vast gains made on the Stock Exchange which should yield some revenue to the nation, but whether they can frighten the football investor into throwing out this idea through being afraid for his own wins. I hope that we can raise the level of discussion beyond that, but I shall come to that point later and I shall deal with it.
There seems to be no argument that large gains have been made in this way. Some people would argue whether they derive from any particular skill. They certainly derive from very little sweat, but, if income is taxed, I cannot see any reason at all why capital should not be taxed. There has been the traditional distinction, thought up by a horticulturist, that the basis should be taxation of the fruit but not of the tree. True capital is supposed to represent a tree and income is supposed to represent the fruit. If we pursue that analogy a little we see how clearly inadequate it is. It is astonishing how a very clever metaphor can hide the truth from the nation for a long time.
If I pursued it I would say that certainly, in my gardening pursuits, if I want good fruit I must prune the tree. If I allow the tree to grow unchecked I cannot get good fruit from it. To continue the horticultural reference, there is no reason why we should not prune the tree as well as taking the fruit. The argument put up by hon. Members opposite bears no relationship to the reality of the situation. Large capital gains have been made which are escaping

taxation and, as the Chancellor of the Exchequer will readily acknowledge, will continue to escape under his proposals.
Another reason why I support a proposal of this sort is that it would help to decrease tax avoidance. I am sure the Chancellor will not claim that for his proposal. Our Amendment would certainly make it mare difficult to avoid the payment of tax. I hope that the Chancellor will agree that that is a desirable thing. Tax avoidance has reached the level of a national sport. It has assumed such degrees that, to use the words of the Chancellor, some of the best brains in the country are engaged in finding ways of avoiding taxation. If I recall correctly, he used that very phrase about the capital gains tax when he refused to introduce it. I think that he will agree that the best brains in the country do not need to be engaged to avoid his taxation.
Even those of us who are not expert on Stock Exchange affairs can see that if we pay tax only on gains realised in the space of six months, by waiting for six months and a day we can avoid the tax altogether. I would not say that this tax was designed to be evaded, but I can see no easier tax to avoid than this one. A permanent capital gains tax levied on securities and land would yield a substantial sum and would be much more difficult to avoid because, by its very nature, it would be a permanent tax.
I hope that this argument will continue if the Government continue to oppose a capital gains tax. Let us continue the discussion in the country and see what the people think about the rights and wrongs of the situation. This is a challenge I should like to take up. I should like hon. Members opposite to take it up and argue on it because I believe that there is a very fruitful revenue yield to be derived from it. What could we do with that revenue? We could embark on some of the projects which the Financial Secretary told us yesterday he wants to see.
The hon. Gentleman agreed with me that he wanted to relieve people earning five guineas a week from payment of tax. He would like to assist a married couple who pay about 5s. a week in tax and have an income of only £8 10s. a week. I am suggesting to the Chancellor


ways in which he could begin to do that. If I am asked whether I think that a capital gain made by buying a piece of land, holding it for a few years and then selling it, should yield a revenue to be used to relieve the poorest in the country, I have no doubt what my answer is. I should have thought that those on the Government benches should answer in the same way if they really believe in equity. I would be possible if we had a Conservative Chancellor, or, indeed, any other Chancellor, to consider the burden of direct taxation, of Income Tax itself.
We have got into a bit of a tangle in discussions about this matter. If I am partly responsible, I accept my share of responsibility. There seems to have arisen the idea that we hold the view that the direct taxpayer is not paying his full share. That is not my view. My view is that the distribution of the burden within the total amount of Income Tax paid is wrong, that the people at the bottom of the scale pay too much and people at the top pay too little. That has been so ever since 1955–56, when the big reliefs started to have effect in payment of Surtax and Income Tax. [An HON. MEMBER: "It was before that."] I agree that there was a reduction in Income Tax before that, but the real slide was undoubtedly after the 1955 General Election. Statistics show that quite clearly. Whether hon. Members opposite were rejoicing in their majority so much that they did not care about the country's situation I do not know, but the fiscal consequences are quite clear to anyone who studies the figures.
The Government have so distorted our fiscal system that they have made the poorer people—by that I mean anyone earning £15 to £20 a week—pay more and those in the Surtax bracket pay less. I am suggesting that a way in which we can recover some of that revenue is to adjust the burden inside the Income Tax field. When I consider the reaction which many people have had to this idea, I have no doubt at all that the country would find this socially acceptable. Indeed, it would blame the Government for not having taxed this fruitful field earlier.
It is not as though we were unique in considering this matter, or that it is

the first time it has been considered. Estate Duty has been with us for many years, we have had legacy duty and succession duty and a whole series of taxes of that sort. Other nations do not hesitate to put a tax on capital. It is well known to everyone that in the United States there is a short-term tax such as that proposed by the Chancellor and there is a long-term tax as well. In Germany and in Switzerland capital gains are taxed.
I mention those countries because I want to meet in advance the arguments which I suppose will be put and which it is difficult to answer because the arguments are hypothetical, that a capital gains tax is a discouragement to investment. If that is so, how do we account for the situation in Germany, in Switzerland and in the United States? Clearly, a capital gains tax can be a discouragement to investment, but it depends on what kind of capital gains tax it is. It depends on the rates, whether we abate the amount of capital which has accumulated and a number of things, but that a capital gains tax can yield a substantial amount of revenue and, at the same time, not be a discouragement to genuine savings and investment, there can be little doubt.
In discussion of the Amendment, the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), speaking last night, said that it would freeze wealth and stop the sales of land. I just do not believe that for a moment. I doubt whether he had understood the full purport of the Amendment.
I do not want to attach any undue significance to the Amendment. It is a useful peg on which to hang this debate, because it serves as an illustration of how a capital gains tax could be devised. I attach no greater and no lesser weight to it than that. If I were asked to bind myself to the rates of tax or the number of years contained in the Amendment, I should have to refuse, for natural and obvious reasons. It would be foolish for the Opposition to try to construct a tax without the help of the Board of Inland Revenue and other experts, which we would have if we were the Government. I want to make quite clear that this Amendment is for the purpose of illustration.
To meet the point made by the hon. Member for Walsall, South, let us see


what these illustrative figures would do. I take two examples under the Amendment which, he says, would stop the sale of land and slaw down, if not stop, the sale of securities. The first concerns a piece of land bought for £500 and sold ten years later for £1,500. That is not an unusual figure; indeed, it is a very modest figure. That is a capital appreciation of £1,000.
Under our Amendment we have, first, a disregard far the length of time that it has been held. It would mean, in this case, £300. We would then tax the balance at the standard rate of 7s. 9d. in the £, as it is at the moment. The tax payable on £700 at 7s. 9d. in the £ would be £270. So, out of a capital gain of £1,000, he would be left with £730, if the standard rate of tax had not altered meanwhile. If it had gone up, or down, naturally, the resulting sum would be more, or less. Will anyone tell me that this would freeze the sale of land? If a man bought a piece of Land for £500 and there is an interval of ten years between the buying and the selling, because it is not proposed to make the tax retrospective, will anyone tell me that he will not sell it because he will get only £1,200 instead of £1,500 for it? If so, I shall not believe it.
Let me take the case of a security. Under our Amendment, if it were bought for £400 and sold in eight years' time for £1,000—a modest rate of appreciation in present-day terms—the capital gain would be £600. Under the table which we have put in, we would disregard 50 per cent. of that £600. The investor would pay tax on £300, which, at the standard rate, assuming it to be 7s. 9d. in the £, would be £116. The net gain that such a person would be left with would be £484.
I ask hon. Members to accept those figures for the moment. They can check them later. I am saying that under the Amendment a security bought for £400 would still yield, after payment of the capital gain, even under the table which we have constructed for the purpose of illustration £884 instead of £1,000. Will anyone tell me that that will ruin the Stock Exchange or stop investment? It so, I shall not believe a word of it.
The simple truth, as I understand this, is that hon. Members opposite are

massed here this afternoon to reject the Amendment, and I have no doubt that they will succeed in doing so. But the Chancellor has opened up a very fruitful financial vein, which could yield very great profit to the nation. It is one which would enable us to do a great many things which would assist both in the redistribution of wealth and in the creation of a number of fruitful enterprises that we cannot afford to finance at present. It is for these reasons that I have deployed at some length the case for a genuine capital gains tax.
I was asked earlier—indeed, the only question asked so far by hon. Members opposite—about football pools. A number of considerations come up straight away. If we have a capital gains tax, then, in theory, we should tax every capital gain, whether it is pictures, jewellery, football pools, or anything else. That, I think, is the theory of a capital gains tax and, indeed, that is the practice in a number of countries. Nevertheless, for the reasons which I shall give, I do not believe that it would be right to apply that in this country without adjusting a great deal of other taxation.
4.15 p.m.
One reason—it is a very important reaon—is that the football pool stakeholder pays at present a very considerable amount of revenue into the Treasury. He pays 33 per cent. duty on every stake. That is the contribution before we start. It is a very substantial sum. In fact, out of total stake money of £110 million, £33 million goes in duty —the amount of duty being the same as the percentage. This, to my mind, is a very considerable sum to mulct from this industry. I do not know whether hon. Members opposite want to tax football pools or not, but by their interest in them I begin to suspect that they do.
I say, for reasons that I shall give, that it would be unfair to do so in this case, and I also believe that it would be administratively impossible. How would hon. Members opposite envisage taxing every small gain of ls. 3d., £5, £10 or £15, all the dividends that accrue every week? If we did that, we should have to allow the stake money on which they did not get the dividend as a loss. Hon. Members opposite must answer this question if they are serious about this matter. I do not think that they are


serious. I think that they are trying to use the football pools as a red herring to destroy the serious case that has been made from this side. It is administratively impossible, in my view, to tax football pool winnings in this way, nor, in view of the amount of tax taken out by means of a direct impost of this sort, would It be right to do so. The sum of £33 million out of £110 million is very substantial. I dismiss this because I believe that it is a red herring.
What we would like to do is what the Government are doing, but to make it a permanent tax, namely, tax securities and land gains in the way described in the Bill, but make it a genuine capital gains tax. I hope that that is clear. If any hon. Member opposite who is interested in football pools thinks that I have not made the position clear, I am ready to give way so that a question may be asked.

Mr. Edward du Cann: Would not the hon. Gentleman agree that there is a great deal more in this than mere mathematics? What is important primarily is the psychology of the matter. There are many of us who feel very strongly that, on the whole, it is quite wrong to encourage betting in any way. Indeed, I think that it would be right to discourage the populace if it is tending to become a nation of bettors. It would be much better if it became a nation of people concerned in putting their money into productive industry for the national economy.

Mr. Callaghan: I should have thought that there was sufficient discouragement to the pool stake holders when the Government take 33 per cent. of everything that they put in.

Mr. du Cann: It does not seem like it.

Mr. Callaghan: If it does not seem like it, the hon. Member will have to do something about it. No one on the Stock Exchange is told that, if he invests his money, 33 per cent. will go to the Chancellor of the Exchequer, irrespective of whether he gets anything from it or not. The scales are already heavily weighted against the football pool investor and very heavily in favour of the Stock Exchange investor, even taking the Stamp Duty into account.

Mr. F. Harris: If the hon. Gentleman reads HANSARD tomorrow he will find that he said that tax, in his opinion, should apply wherever profit is derived, so how can he leave out football pools and things like that?

Mr. Callaghan: If the hon. Member will look at the Finance Acts, he will find that they are studded with exemptions. The next Clause deals with the relief of taxation on the payment of Army bounties. It is exactly the same proposition. I do not know whether hon. Members opposite intend to make propaganda in the country about this or not, but I suspect that they will. If so, they will be telling deliberate falsehoods, in view of what I have said. I hope that they will meet the case on its merits. It is a very strong and difficult case to meet, if they do argue it on its merits and not on the basis of red herrings.

Sir Cyril Osborne: It is unfair of the hon. Gentleman to say that we shall make deliberate propaganda and tell falsehoods when he does not know whether we are to make propaganda.

Mr. Callaghan: The hon. Gentleman knows very well that the Prime Minister won the last General Election on a falsehood.

Sir C. Osborne: Face the issue.

Mr. Callaghan: Do not ask me to face the issue. I am facing it strictly.
What I am frightened of is that hon. Members opposite will try to dodge it by talking about football pools all the time. The only questions we have had from hon. Members on the other side so far have been about football pools. Are they not interested in anything else? If they were, surely the discussion would turn on those other questions. It is rather shabby that hon. Gentlemen should spend all their time discussing football pools.
I have made quite clear what we would do. Let them state what they would do in these circumstances. Let them answer the case for a capital gains tax in the form in which I have put it. I believe that there is no answer to it. The right hon. and learned Gentleman's proposal is puny, weak, flaccid and irritating. He himself says that it will


yield no revenue. In my view, it is a tax which bears no resemblance to the needs of the situation or what could be got. As the right hon. and learned Gentleman said, he has deliberately imposed it so that the wage earners should feel that there was fair treatment between the two sides of industry. But he is not going to raise any revenue from it. This is a foolish thing, both to say and do. Political taxes of this sort will not satisfy anyone.
We are meeting here today on the very day on which the Ministry of Labour's index of retail prices has had the largest increase that it has had within my recollection for eighteen months.

Mr. Douglas Jay: For ten years.

Mr. Callaghan: I can hardly believe that, but my right hon. Friend will no doubt look it up. It may well be right that it has not gone up two points in a single month.
What is true is that during the last twelve months it has increased by at least 5 per cent. The ordinary wage earner, who is being asked either to accept no increase in pay or to limit his increase to 2 per cent., is facing an increase in the cost of living of at least 5 per cent. He is being asked to face today a genuine reduction in his real standard of living because of the increase in the index of retail prices.
I cannot discuss an incomes policy today, because I would be out of order. If we are to have sacrifices like this, we on this side of the Committee have the right to ask that where there is taxable capacity, and it can be made to yield a source of revenue which would be available to meet the Chancellor's needs, it should be taxed. That is the case for a capital gains tax. It has been demonstrated in many countries that it can be done. It could be done here. What the Chancellor has proposed is merely a pale and feeble imitation of it. It is for that reason that we are pressing this Amendment this afternoon.

Mr. Frank Bowles: I had hoped to speak on this subject on the Second Reading of the Finance Bill, but at that time I was not able to complete

sufficient studies to enable me to say what I wanted to say. When I was in America during the Christmas Recess I discussed with two lawyers, one in Washington and one in New York, how the capital gains tax worked there. As we are discussing this subject, I think the Committee might be interested to realise that nobody seems to be offended by it. There have always been controversies and arguments about whether capital gains should be taken into account in their system of income tax.
It is argued, for example, that a capital gain resulting from a decline in the interest rate has little in common with a gain attributable to profits being retained by a company. Another view is that capital gains should not be construed as income but should be completely free from taxation. The capital gains tax was said, in the arguments which have been going on for years, to be especially discouraging to the employment of risk capital. It has been said that it would block economic progress.
An additional argument has been that capital gains are usually the result of gradual capital growth over the years. Therefore, taxation of such a gain in any one year as though it were income accrued in that year is regarded as grossly unfair. In many cases capital gains do not indicate increased ability to pay taxes—for example, all those gains which arise from changes in prices.
As lawyers probably remember, in the post feudal Europe all land was usually entailed. Therefore, there was no possibility of selling land out of the family. In those days there was a conception that capital was a res—a thing. For example, a Government bond would be a res. So would land. They regard any fluctuations in the value of a Government bond as being no change in the investment. The bond would still be there, unless it was sold. In exactly the same way, the increased value of the bond would be rather like land where certain water had receded. The result would be that there was more land but the thing—the res—would be just the same.
The United States of America followed this conception of Europe. It was thought there, however, that a capital gains tax would be unconstitutional in


the years when the Acts were first passed, unless the capital gains were realised.
Some people would make no differentiation between capital gains and other forms of income. It is pointed out that exemption benefits mainly the wealthier taxpayer. In the United States the federal tax on capital gains for many years represented a middle ground between the two views. From 1942 onwards only one-half of long-term gains has been taken into account in arriving at net income. The payer may elect to have long-term capital gains taxed at a special rate in lieu of the regular rates. Therefore, no long-term gain is taxed above 25 per cent. Short-term gains of six months or less are paid at the regular rates of income tax and surtax. Losses from sales of capital assets can be offset only against capital gains plus 1,000 dollars of other income.
Five categories of assets are excluded —inventories, property held for sale to customers in the ordinary course of the taxpayer's trade or business, depreciable business property, real property used in a taxpayer's trade or business, and obligations of federal and state governments issued after 1st March, 1941, on a discount basis and maturing in not more than one year.
In 1942 many industries—metals and metal products, machinery and accessories, automobiles and accessories, textiles, etc.—were asked this question, "Do you regard the present tax provisions covering capital gains and losses as reasonably satisfactory?" I need not go through them all. Metals and metal products returned 56 per cent. of affirmative replies. Textiles returned 65·2 per cent. of affirmative replies. Automobiles and accessories returned 33·3 per cent. of affirmative replies. Paper and paper products returned 71·4 per cent. of affirmative replies. Out of the total number of replies, 56·1 per cent. were in favour of this capital gains tax. In their opinion, it had worked satisfactorily.
4.30 p.m.
I might point out to the Chancellor that the difference is that the tax on long-term capital gains is not more than 25 per cent. It is not the full rate of Income Tax and Surtax, and it is very important to remember that. The view

was that it was the extraordinary wide gap between the rate of capital gains tax and the rates of ordinary Income Tax which diminished the deterrent influence of the former and brought more realisation of capital gains. There seems little doubt that the 25 per cent. capital gains tax there now looks low as compared with the taxes on ordinary income. It was, therefore, a smaller psychological obstacle to sales than the absolute level might suggest. Because it was widely regarded as a bargain rate it probably gave some investors a positive stimulus to "take" the capital gains. In other words, the impetus for selling would not exist if capital gains were subject to the same high rates as dividends.
A capital gains tax has been in force in the United States for either 60 or 80 years—

Mr. Callaghan: Sixty years.

Mr. Bowles: Yes, I thought that it was sixty years. A Revenue Act introducing a tax on gains from stock was passed in 1862, but that was held to be unconstitutional unless the gains were realised.
As I say, this form of taxation has been going on in America for sixty years, and my hon. Friend the Member for Cardiff South East (Mr. Callaghan) has mentioned European countries where it also applies. Many people say that if we went in for this capital gains tax, our economy would go bust. The United States economy has not bust. It has done exactly the opposite—it is robust. There is therefore no need for the terror that hon. Members opposite appear to have of this very modest Amendment.
Throughout the history of this tax there have always been people finding loopholes in it. That occurs in the United States, and it will probably occur here when we get it into force. There will be those who, all the time, will be advising their clients how to get round it, and I hope that the Treasury's advisers, and the very learned Parliamentary draftsmen, will try to be just as clever in stopping up the loopholes in future Measures so that the tax will be really efficient and effective.
I have not gone into the social arguments of justice, and so on, because those have been already put forward,


but I thought that it might be useful to show that the history of the tax in the United States demonstrates that there is no evidence that such a tax deters investment.
Yesterday the hon. Member for Walsall, South (Sir H. d'AvigdorGoldsmid) said of these Amendments:
The force of them is to freeze the situation as it exists today.
A little later he said:
But the Amendment is not designed to achieve that object. Indeed, it will produce exactly the opposite result. If, by some strange stroke, the Amendment is adopted, people who own land will do nothing at all with it. Thanks to the guidance which we have been given. they will know that the best thing is for them to do nothing with their land, for seventy-five years according to the Amendment of the hon. and learned Gentleman, …".—[OFFICIAL REPORT, 21st May, 1962; Vol. 660, c. 157.]
The history of the working of the tax in the United States of America and elsewhere shows that statement to be nonsense, and I hope that the Chancellor of the Exchequer, who shows great courage, although I disagree with him, will next year legislate for a tax not only on short-term but also on long-term capital gains.

Mrs. Barbara Castle: I support the Amendment moved by my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) because it seems to be the only way in which we can bring any kind of sense at all into this Clause. I am interested to see that since my hon. Friend successfully laid, once and for all, the bogy of football pools on which hon. Members opposite have been so anxious to concentrate, they seem to have lost a considerable amount of interest in the Clause.
We are being asked to agree to the introduction of a new piece of taxation which, if the Clause goes through in its present form, is absolutely mystifying. I am quite genuinely bewildered as to what this tax is supposed to do, or what the Government think they are achieving by it. We know that the tax is not being levied to raise revenue. The Chancellor himself in his Budget speech said, "I can't tell you the yield but, in any case, I am not interested in the yield. That's not the idea behind this tax."
That, to begin with, is a rather astonishing admission for a Chancellor

to make. For a Chancellor of the Exchequer to say that he is not interested in the yield of a tax is rather like a bookmaker saying that he is not interested in the odds. Neither is running a philanthropic institution. We do not have an elaborate tax structure except to raise revenue. We are told that this tax is to have a political effect, but how can tax which does not raise any revenue at all have any political effect? How can something which does nothing do anything?
It might be argued that, once again, the Government have introduced the tax for the sake of appearance, but this tax has fooled nobody. It certainly has not fooled the Stock Exchange. In fact, the day after it was introduced, there was an absolute boom in property shares, indicating the relief of the property investors when they found that this short-term speculative gains tax was completely phoney, and would not reduce their income at all.
Since the tax was introduced, The Times index of share values has continued to rise steadily. It rose the day after the tax was announced, and it has gone on rising—

Mr. du Cann: As a simple matter of fact, it is not true to say that the index of ordinary shares has shown a consistent rise since the introduction of this tax. The market has been particularly weak very recently. One of the immediate effects that the introduction of the speculative gains tax has had on the Stock Market—which many of us want to make the finest market in the world, particularly if we go into the Common Market—has been to decrease turnover, which is much to be deplored.

Mrs. Castle: The Times index of share values stood at 132·61 immediately before the Budget, rose to 133·45 at the end of the day after the Budget announcement, and had risen to 134 at the end of April, three weeks after the Budget.
It is perfectly true that there are constant admissions of economic failure and disaster peppering, as it were, the lifetime of this Government from month to month, but it is fairly clear, taking these three figures together, that the psychological effect of the tax was not one of alarm and despondency.

Mr. A. R. Wise: From the figures which the hon. Lady produced, I should not consider that there was a boom in share prices if there was a total rise of only 1¼ per cent.

Mrs. Castle: Had we had the introduction of a tax which was going to make capital gains pay their fair contribution to the income of the economy I am sure that the hon. Member for Rugby (Mr. Wise) would have expected share values to decrease and not to rise.
In addition to what I was saying earlier, I do not believe that the tax has fooled even hon. Gentlemen opposite. I wonder if hon. Members now present heard the moving speech made yesterday by the hon. Member for Brierley Hill (Mr. Talbot). He had no illusions about it having any fiscal or psychological effects. He said:
… let us have no more talk of social justice. The spring of justice in this place "—
has been running—
through the muddy waters of expediency…" —[OFFICIAL REPORT, 21st May, 1962; Vol. 660, c. 153.]
What, therefore, is the tax supposed to be? My hon. Friends and I are getting accustomed to having the Government steal our policies, distort them and then introduce their version because they know that our philosophy and economic analysis is irrefutable. To prop up their tottering administration they must borrow some of the main planks of our policy. We saw that happen over superannuation. We produced a national superannuation scheme of such obvious fairness that the Government had to rush through their distorted graduated pension scheme. Then we had planning. Despite what we had said, we were sneered at by the Prime Minister at one election after another about our being nationalisers and planners while he spoke of Tory freedom. Now we have "Neddy".
4.45 p.m.
For a considerable time we have agitated that a fair capital gains tax should make a contribution to the Revenue. The Government found this argument irrefutable and they have become known as the "copy-cat Conservatives" and they have, therefore, produced a copy-cat edition of the capital gains tax. As I say, they produced their graduated pension scheme and now

"Neddy" is an edition of the real thing. The Government are not pretending that this is a capital gains tax, for we have heard the Attorney-General and the Chancellor of the Exchequer saying, in effect, "No, this is not a capital gains tax"—so what on earth is it supposed to be or to do?
It is not much use having a fig leaf so transparent as this one, for it is carrying political indiscretion—I am tempted to say indecency—to terribly great lengths. Yet the Government know perfectly well that one must, if one is attempting to introduce an incomes policy, have a capital gains tax to balance it. That is why they are making this half-hearted parade. If the Amendment is not accepted what will be the economic trend over the next few years? The Government are seeking to enforce an incomes policy, but so far it has merely taken the form of restraint on wage increases. Every time the Government are successful in denying to any section of the community—whether nurses, probation officers or engineers—an increase in wages they are enabling industry to make higher profits that will go to the people whose incomes are already very high.
No one can suggest that the Government have been proposing to offset that by equivalent restraint on dividends. In the Budget debate the Financial Secretary to the Treasury said that the Government do not believe in a policy of limiting dividends as one might limit wages. But even if they were prepared to limit dividends that would not get to the kernel of the matter, because it would merely mean that the dividends were ploughed back so that the shareholder would be merely postponing his increased enjoyment.
A wage denied is a wage lost for ever. A wage increase that is not enjoyed today is not put in the bank. We do not still have the post-war credits system and. anyway, some people arc still waiting to cash theirs. When the Government say to the nurses, "You shall not have the increase for which you have asked", they are denying them that consumption for ever. That denial is being made at a time when they are giving an immediate increase of enjoyment to other people. It is being done in such a way that the Government are


increasing the long-term enjoyment of those who will stand to benefit from that wage restraint.
This is the overwhelming case for a capital gains tax. Hon. Gentlemen opposite know in their hearts that the Government are today carrying through an incomes policy in a free society, with a free trade union movement with free bargaining machinery and are, at the same time, saying to the workers, "Your restraint, sacrifice and patriotism will increase our profits." The Government can carry through such a policy only if they say, "Your restraint, sacrifice and patriotism will accrue to the benefit of the whole community."
There is only one way to make sure that the increased prosperity of industry that will come from the wage restraint of the community will benefit the whole community, and that is by taxing the capital gain. A successful incomes policy in this country will mean an enormous increase in share values and, therefore, an incomes policy without a capital gains tax merely means the stimulating of the process of concentrating the wealth of the nation into fewer hands.
My hon. Friend the Member for Ash-field (Mr. Warbey) pointed out yesterday that 45 per cent. of the private wealth of Britain is today in the hands of 2 per cent. of the population. If this Government's one-sided incomes policy goes through that process will be carried further still and that is why my hon. Friends have moved an Amendment to introduce a permanent and genuine capital gains tax, for it is only on this basis that any Government can ever hope to properly implement an incomes policy.

Mr. Alan Hopkins: The hon. Lady the Member for Blackburn (Mrs Castle) made the point that the Conservative Government in past years had taken over from the Opposition various of their policies. I sincerely hope that my right hon. and learned Friend the Chancellor of the Exchequer will not on this occasion take any lesson or pay any heed to the sort of capital gains tax to which the hon. Lady has referred.
The hon. Member for Nuneaton (Mr. Bowles) described extremely well the effects of the American capital gains

tax and some of its history. He has obviously studied it and I am sure that he would agree with me that it is extremely complex.

Mr. Bowles: indicated assent.

Mr. Hopkins: The regulations enacted pursuant to the internal revenue code of America are some of the most complicated forms of administrative regulation that exist today. I suggest that this is one good reason for not seriously considering the specific Amendment moved by the hon. and learned Member for Kettering (Mr. Mitchison). It suggests a complicated formula. I readily concede that it can work and I accept the figures given to us earlier, but it will be of undoubted difficulty to the individual investor and to the professional advisers and accountants who have to see that the affairs of the individual investor are arranged and ordered properly.
The duration of time to which the Amendment refers imposes undoubted hardship upon certain types of investors. The hon. Member for Cardiff, South-East (Mr. Callaghan) gave the illustration of a share purchase held for ten years. He said that the tax by then would be just over £100 and the gain would be just over £400. But during that period of time, of course, it might well be that the value of money had declined. In an extreme example it might well be the case that the resulting purchasing power left to the investor after payment of tax might be less than he started with initially. This would be an undoubted hardship on the investor.
Another effect which we can learn from the American capital gains tax, which has now been in operation effectively for twenty years—the preceding legislation was rescinded for a period of time before the war—is in the case of shares in companies which are not actively quoted on the Stock Exchange. In that case marketability becomes very difficult.
The hon. Lady the Member for Blackburn referred to the small percentage of the population who own ordinary shares. I agree with her that this percentage is far too small. I would not want in any way to impose any tax or anything that could operate to reduce the spread of share ownership. I know that my hon. Friend the Member for Taunton


(Mr. du Cann), who is interested in this matter, would agree that the capital gains tax in America has been seen adversely to affect the direct spread of stock ownership. The Amendment calls for a process which, by reason of the duration factor in it, could result in a substantial change in the nature of the original investment purchased, by involuntary conversion and by the issue of other classes of shares. This does not seem to have been taken into consideration by the hon. Member for Nuneaton. This is a lesson from the capital gains tax of America which has proved administratively extremely complex, and I suggest that the formula proposed by the Opposition would not cater for it.

Mr. Bowles: It may be true that there is complexity, but there is no serious suggestion that the American capital gains tax should be withdrawn, is there?

Mr. Hopkins: Not at all. I think that the American capital gains tax is generally as effective a way of running a capital gains tax, if one wishes to have one, as there is.

Mr. Jay: In that case, would the hon. Member not agree that, assuming the American form of capital gains tax, there should he a tax on long-term gains as well as on short-term gains?

Mr. Hopkins: That is certainly in the American tax and, as far as I would accept that it is a good system of taxation of capital gains, I would accept that.
The cost of collection of the capital gains tax in America is extremely high. I do not have the figures with me, because I did not think that this would be a point at issue, but it is segregated in reports published annually by the United States Internal Revenue Department and it is by far the highest of all costs of tax collection in America.

Mr. Roy Jenkins: I do not know that it matters a great deal whether the hon. Member for Bristol, North-East (Mr. Hopkins) approves or not of the American capital gains tax, but if he does he might tell us and not merely, when questioned, take refuge by saying, "If I accept the tax I might accept this or that view". It would have been more interesting if the hon. Member had told us what was

his starting point and had said whether he was in favour of or against such a tax.
I do not want to deal at great length, however, with that point, but I was surprised that, calling in aid the hon. Member for Taunton (Mr. du Cann), who certainly knows a great deal about these matters, the hon. Member said he thought that the American system of capital gains taxation had restricted the spread of ordinary share-owning in the United States. It would be difficult to determine, but it might be that the spread of ownership would be wider without a capital gains tax. Certainly, with the tax it is wider in the United States than it is in this country without the tax. Therefore, it does not seem to me to be a very obvious or overwhelmingly powerful point to be made on this Amendment.
I agree with my hon. Friend the Member for Blackburn (Mrs. Castle) that the capital gains tax proposed to us under the Clause is an extremely weak substitute for a real capital gains tax. When I heard it proposed in the Budget statement and defended, so far as it was defended, in the Budget debate, I took the view that if the tax did anything at all it was most likely to discredit the idea of a capital gains tax. Nobody who has studied this matter thinks that this is a real capital gains tax, but I think that there is a vague hope on the part of some people that those who have not studied the matter may think that something approaching a capital gains tax was introduced in the 1962 Budget and that it did not produce any revenue and was rather complicated, and that they would ask whether it was worth bothering about.
This is an important new field of taxation which we ought to approach and consider very seriously. I do not think that there can be any dispute that a real capital gains tax with teeth in it would produce a sizeable amount of revenue. Obviously, there is dispute about exactly how much revenue it would produce. In the majority and minority Reports of the Royal Commission on the Taxation of Profits and Income varying views are expressed about it. I should have thought that the fairly high estimates in the minority Report of the Royal Commission were very well supported by the evidence.


However, leaving that aside, there is no doubt that a real capital gains tax would produce an appreciable amount of revenue. The Chancellor himself disposes of the idea that this is a real capital gains tax when he says that he does not expect it to produce any sizeable amount of revenue.
5.0 p.m.
My hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) called attention to the fact that the Chancellor of the Exchequer has said that whatever system of taxation one produced the best brains in the country would be able to defeat it. However, for that effort at defeat to be called forth, one really needs a tax which shows some signs of having been devised by the best brains in the Treasury. This tax shows no such signs. I imagine that some of the most mediocre brains in the country will be able to defeat this tax, and that there is no need to call into the battle the best brains in the City or the best accountancy brains. It will be quite easy to do it without any problem of that kind.
In my view, the distinction between short-term and long-term capital gains is a rather artificial one. I do not really like the American system of taxation. It is much better than what is proposed here, but it is not ideal because, in my view, one cannot draw any true distinction between again which is realised within six months and a gain realised over a longer period. It is better to tax the longer-term gain at some rate than not to tax it at all, but, even if one does tax it at some rate, the distinction is essentially an artificial one.
In strict equity, though, perhaps, from a rather abstract point of view, I consider that the whole distinction between realised gains and accrued gains is artificial. However, from the point of view of making a practical approach to the matter, one probably does have to draw a distinction, although I do not think it has any validity in theory. One has to tax realised gains and not accrued gains. I think that it would be very much better not to draw this distinction in time. I said in my speech in the Budget debate that I thought that the rates of tax are to some exert too high. I should prefer rather lower taxes of tax but more effective rates, without

this entirely artificial distinction between very short-term gains and real gains.
In a sense, the tax now proposed reflects in miniature a defect in our present system of taxation. What we are only too inclined to do is to erect very high rates of nominal taxation upon an extremely narrow tax base and then convince ourselves that we have a thoroughly egalitarian system of taxation. I think that it would be a good deal better to have a wider tax base and, if necessary, rather lower rates of tax. This tax falls to the ground entirely from that point of view, and it has made very little contribution to a more logical system of taxation. It is designed much more to discredit the idea of a capital gains tax—though I do not think that many people wll be convinced—than to make a real contribution.

The Chief Secretary to the Treasury and Paymaster-General (Mr. Henry Brooke): I have no doubt at all of the importance of the controversy on this subject, an importance not fully reflected by the somewhat sparse attendance on both sides of the Committee.

Mr. William Warbey: I wonder whether—

The Temporary Chairman (Mr. John Arbuthnot): Order. If the Minister does not give way, the hon. Gentleman must resume his seat.

Mr. Warbey: The right hon. Gentleman has now given way, Mr. Arbuthnot. I am much obliged. He has just referred to the sparse attendance in the Committee. I remind him that this is due partly to the fact that some hon. Members, including myself, have to be in two places at once. I have just come down from the Standing Committee—

The Temporary Chairman: Order. We cannot go into that now.

Mr. Brooke: We have been debating this subject for three hours, and I think that it would be the wish of the Committee to hear a Treasury Minister on it. We have under discussion a variety of Amendments. I shall not be so discourteous to hon. Members opposite as the hon. Member for Cardiff, South-East (Mr. Callaghan) was when he described the Amendment in the name of his hon. Friend the Member for Enfield, East (Mr. Mackie) as wishy-washy. That was not


the description I should have given to an Amendment which, as far as I can judge, would be likely to subject to Income Tax and Surtax a capital gain on land acquired up to ten years beforehand.
Of course, Amendments of that kind throw into high relief the difficulty inherent in making subject to Income Tax and Surtax in one year a capital gain which has accrued over several years. This is the weakness in all the proposals substantially to retain the idea that the gain should be subject to Income Tax and Surtax as ordinary income and yet that the period of the holding of the asset should be lengthened far beyond that indicated in the Chancellor's proposal.
My hon. Friend the Member for Brierley Hill (Mr. Talbot) went in the other direction. He suggested that the three years proposed in the Bill for capital gains on land should be shortened to two years. Two years, I suggest, is too short because land is not easily negotiable and transferable like securities. One can ring up a stockbroker and sell or buy a share at a moment's notice, but transactions in land, which necessarily refer to a particular piece of land, are usually fairly long drawn out. I fancy that, if my hon. Friend's Amendment were adopted, there would be cases where the negotiations for sale would be started almost as soon as the land had been acquired, and it would go too far in rendering it unlikely that there would be any yield at all from the tax.
The hon. Lady the Member for Blackburn (Mrs. Castle) and other hon. Members opposite alleged that the Chancellor was not hoping for any revenue at all from this tax. Of course, he is. What he said in his Budget speech was that it was quite impossible at this stage to estimate or evaluate the amount of revenue it would bring in. But this is a tax which is intended to bring in revenue, though he would be more than a speculator himself who attempted to say what amount of tax revenue it would realise.
The Amendment moved last night by the hon. and learned Member for Kettering (Mr. Mitchison), the main Amendment, is designed to continue the

liability to Income Tax and Surtax on capital gains, but at a tapering rate, over one hundred years. If I were introducing a permanent capital gains tax, I should try to avoid the sort of mathematical conundra involved in the first of the two Schedules. But I do not want to argue that point nor to consider whether, under the first Amendment, a piece of land which has been held for eleven years would enjoy a rebate of 37½ per cent. whereas under the second Amendment it would enjoy a rebate of 40 per cent. The fact is that, under both those Schedules, as the hon. and learned Gentleman said, whereas at the beginning the Income Tax and Surtax would fall on 100 per cent. of the gain, as the years went by it would taper down to 25 per cent.
There are certain similarities between the hon. and learned Gentleman's proposal and the tapering arrangements in Sweden. If I may say so, I thought that the hon. Member for Cardiff, South-East was incorrect when he prayed Germany in aid. My information is that the Federal German Government do not have a long-term capital gains tax such as the Opposition wish to introduce. They have a short-term gains tax which is rather less severe in its incidence than that which my right hon. and learned Friend is proposing.
There is a clear-cut difference of approach between the two sides on this whole matter, and I do not seek to minimise it. It was fully recognised last night by the hon. Member for Gloucester (Mr. Diamond). He said perfectly fairly that the Chancellor was not proposing a capital gains tax, but that he is proposing something else; in fact, a tax on money which could easily be spent as income, because it comes in very much as income does, but which, at the present moment, happens to escape taxation. The hon. Member for Gloucestershire,West (Mr.Loughlin) said last night that the professionals would not pay it, but the real professionals in this field do pay, because they have to pay tax on the profits of their trade.
I do not seek to conceal the fact that somebody can avoid paying this tax by holding on one day, a few days or even a few months beyond whatever is the appropriate period for the type of property in question, but, nevertheless, I think that the Chancellor is right in


saying that it is land held for a period of less than about three years and stocks and shares held for a period of less than about six months which are the normal subjects of speculation. I am certainly not saying that every sale that takes place within such a period is a sale following a purchase which was made with speculative intent. Nor am I saying that there are not speculative transactions which continue beyond these periods. I do not think that my right hon. and learned Friend the Chancellor himself would say that we could prove by absolute logic that six months, rather than five or seven months, would be appropriate or three years, rather than two-and-three-quarter years or three-and-a-half years, but one has to take what appears to be a reasonable period in each case.
The hon. Lady the Member for Blackburn—I am sorry she is not in her place—sought to inject into this discussion the subject of wage restraint and incomes policy. I do not demur at her doing so, but so that there may be no misunderstanding, I want to make it absolutely clear that the incomes policy envisaged by the Government is not a policy the necessary result of which is to inflate share values. Indeed, we can have a thorough-going incomes policy, with restraint on increases of salaries and wages, and, at the same time, a fall in prices, or, at any rate, stability of prices, which would in fact be a more desirable result than the kind of thing which the hon. Lady was envisaging.
The hon. Member for Cardiff, South-East, in effect, said "Here is taxable capacity; therefore let us tax it". There are a very great number of other fields where we can say that there is taxable capacity, but, for good reasons, Chancellors of the Exchequer of all parties over the years have decided not to tax them, because they have seen either that there would be unfairness in the operation of the tax or economic disadvantages flowing from it.

Mr. Bruce Millan: Would the right hon. Gentleman care to specify those fields of taxable capacity, apart from capital?

Mr. Brooke: I can tell the hon. Member at once that the whole field of

advertisements has been discussed, and that successive Chancellors have rejected it, including one Socialist Chancellor, who decided that he could not carry out a project of his predecessor.
5.15 p.m.
The Government's conception is that we should impose a liability to Income Tax and Surtax on short-term gains which are regarded as income and which are commonly used as income. Longer-term gains are not normally used as spending money; they are normally regarded as capital. If, therefore, we tax these longer-term gains, as the Opposition desire to do, what we should, in effect, be doing is to tax savings. There is no doubt, therefore, that a long-term capital gains tax of that kind is bound to be to some extent a disincentive to savings. I would also judge that it would be a disincentive to economic growth, because a capital gains tax, as its effects in America and elsewhere have shown, discourages changes in property ownership. In general, I believe that economic growth postulates a willingness to buy and sell, and that it is thoroughly undesirable in this country in its present position that owners of property should have a tax incentive to hold on to property on if they sold, they would find themselves liable to a substantial tax.

Mr. Jay: Could it not be argued that this tax is an incentive to savings, because as it falls only on realised gains and not on unrealised gains, it is an incentive to people not to sell their capital?

Mr. Brooke: We can argue this at length, and I think I should be right in saying to the right hon. Gentleman that at the end of this debate, whether it goes on for four or five hours or not, there will still be a great deal to be said on both sides. Perhaps the right hon. Gentleman will now allow me to put the other side of my argument.
If the suggestion is that long-term gains are not used as capital, but are spent as income, then it would appear that the Opposition are looking upon their capital gains tax as a tax on expenditure. The answer to that is surely contained in the majority Report of the Royal Commission on Profits and Income, which shows how unfair it


would be as between one person and another. It would be unfair in the case of two people who were seeking to enlarge their current spending power by selling off their property, if the man who sold a piece of property that had increased in value, was liable to tax, whereas the man who sold an equivalent amount of property that had not increased in value was free from tax. It was on that and similar grounds that the Royal Commission concluded that a capital gains tax would not achieve a more equitable distribution of the tax burden.

Mr. John Diamond: Is not that a complete fallacy, if one assumes, as one is bound to assume, in the case of any reasonable, full-scale capital gains tax, that every property is realised sooner or later, and that the property which the second man in the right hon. Gentleman's illustration did not sell would be realised, at all events, no later than the point of his death?

Mr. Brooke: If we go into Estate Duty, we shall make this matter even further complicated. The fact remains that if the hon. Gentleman is suggesting that if at any one time a person who has property of different kinds has no choice as between selling that which has increased in value and selling that which has not increased in value, he is rather far from reality.
May I now turn in greater detail to the Opposition Amendment? It was made clear by the hon. Member for Cardiff, South-East and others that the Opposition regard this as an opportunity for additional taxation. There was no suggestion in any of the speeches from hon. Members opposite that I can remember that the revenue that would be brought in by their capital gains tax should be used to reduce other forms of taxation. The suggestion was made very clearly in his speech by the hon. Member for Cardiff, South-East that the additional tax would enable the Government to find more money for a number of things.

Mr. Mitchison: I must correct the right hon. Gentleman there. I said quite definitely in my speech that what I should like to see would be a reduction of Income Tax at the bottom end of the

pay scale, and, for that purpose, the basis of taxation ought to be broadened. As I see it, this is a valuable and useful means of broadening it.

Mr. Brooke: One thing which is certain about a long-term capital gains tax is that it will not bring in a regular sum of revenue. Everyone who has examined this matter agrees on that. Most people who have seriously examined it have come to the conclusion that the average revenue over the years would be disappointingly small. It certainly would not be an amount which the Chancellor of the Exchequer could count on, year in and year out, in order to achieve substantial tax remissions elsewhere.
The Amendment envisages a long-term capital gains tax, and in the Table one can see the periods up to one hundred years. Do hon. Members opposite really think that, ninety-nine years hence, one could take two pieces of property, one which had been acquired in January, 1962, and one which had been acquired in May, 1962, and say that the latter was subject to tax and the former was not? This is the essential weakness in their proposal. They have not faced the most difficult task of all in bringing in a capital gains tax, and that is what should be done about all the existing property. Such a tax is bound to be unfair unless it is spread over property which is held at the time that the tax is first introduced.

Mr. Mitchison: I do not think that this is a very good argument, but I foresaw it because I did not stop at one hundred years. The right hon. Gentleman has not read the table properly. I should love to live to well over a hundred years, but I do not think the chances of my doing so are high. Nevertheless, companies go on.

Mr. Brooke: I agree. I am not sure that the Opposition have really given their attention to the difference between companies and individuals. Companies go on whereas individuals do not, and individual estates are subject to Estate Duty throughout.
The Opposition are suggesting that, by this Amendment, they are bringing before Parliament a capital gains tax which would be fair. My point is that that is not so, because the Opposition


are failing to consider how it can be done. It would obviously be unfair if, after a number of years have passed, property acquired after Budget day, 1962, was taxable while property acquired before Budget day was not taxable.

Mr. Mitchison: The position is the same under the Government's proposal.

Mr. Brooke: It does not matter under our proposal because the period is so short. It is when we try to turn this, which is not a capital gains tax, into a full capital gains tax that we come up against this insuperable obstacle.
Quotations from American experience were made by hon. Members on both sides. It is one thing to carry on with a capital gains tax which has existed from the beginning and which was introduced in America as a mitigation of income tax and another thing to introduce an entirely new capital gains tax. I am sure that hon. Members familiar with tax matters know that, when considering the tax system of a country, there must always be a strong presumption in favour of carrying on with existing taxes as against introducing new ones because of the terrible complexity of introducing a tax of this kind for the first time.
To be fair, a capital gains tax would have to involve a valuation of all property which might be subject to the tax at a given date. That is what the Amendment fails to do. My feeling about the Opposition's plan, which is offered as a serious alternative to the Government's plan, is rather that of the Irishman who was asked the way to Sligo and who replied, "If I was going to Sligo, I should not be starting from here." That is the real trouble about the Opposition seeking to take the Government's plan, which is not a capital gains tax, and turn it into a capital gains tax.

Mr. Mitchison: These are rather gross errors. Our scheme no more involves a valuation than does the Government's scheme.

Mr. Brooke: Provided it is content to be increasingly unfair, it does not involve a valuation. But as years go by people will not accept as fair that there should be different tax treatment

between property acquired before 9th April, 1962, and property acquired after that date. I ask the hon. and learned Member for Kettering to ponder on that.
Another point which hon. Members opposite have not addressed themselves to is the difficulty about changes in the value of money. They have assumed that any increase in money value will provide taxable capacity. Suppose that a piece of property acquired fifty years ago has doubled in money value. Is there any taxable capacity there? The real value of that property will be less than it was when first acquired. In trying to think out a permanent capital gains tax, one simply cannot ignore the factor of changes in the value of money.

Mr. Jay: Would the right hon. Gentleman apply that argument to death duties?

Mr. Brooke: I have my own views about death duties, but I do not think that this is the time to canvass them.

Mr. Roy Jenkins: Since the right hon. Gentleman puts these points forward as though they have never been considered, may I ask him whether he has read the minority Report of the Royal Commission, in which this issue was dealt with extremely fully?

Mr. Brooke: I have read that Report. It was discussed fully with the majority and failed to convince the majority. I am not aware that there has been an increase since 1955 in the number of people who agree with the minority Report as against the majority Report. This is arguable. I say willingly that we cannot in this debate take to a final conclusion all the factors and principles which require discussion in the course of settling what should be done about a capital gains tax. I am trying to reply to a limited Amendment which is put forward by the Opposition, not as the ideal way of producing a capital gains tax, but as the best way that they can think of to transform my right hon. and learned Friend's proposals, which, admittedly, are not a capital gains tax, into a permanent capital gains tax.

Mr. Roy Jenkins: Since the right hon. Gentleman rests his case solely on the intellectual ground that a majority is a


majority and a minority is a minority, why does he go on speaking? Why not have the Division straight away?

Mr. Brooke: That is an idea which had occurred to me. The sooner we have the Division, the better.
I therefore propose to conclude by saying that, as against the Opposition claiming that here is a field of untouched taxable capacity, the Government are entitled to contend that savings and wise investment are at the heart of this country's increased prosperity and that we must be exceedingly careful before, ill advisedly, we do anything which may interfere with those savings and that investment. There has been very little criticism of the sound structure of my right hon. and learned Friend's proposals in this debate, and I therefore hope that the Committee will reject the Amendment.

Mr. Douglas Houghton: The Chief Secretary must not despise minorities. Those who advocate the right course are nearly always in the minority to begin with. As time goes on, the public will realise the inadequacies of the Government's proposals and will conic round to our view that the only sound and equitable basis of a capital gains tax is to extend it very much further than is proposed in the Bill.
5.30 p.m.
The differences between the two sides on this matter are not only important, but are fundamental. The right hon. Gentleman has defined some of them. We do not believe that it is enough to tax only short-term speculative gains. It is true that the Chancellor is doing exactly what he said he would do—no more and no less. He never promised a long-term capital gains tax. He rejected the concept of this tax and confined himself to considering a tax to bring short-term gains within the existing structure of Income Tax and Surtax.
There is enough experience throughout the world in this branch of taxation to dispel some of the fears that hon. Members have expressed about the effect of a long-term capital gains tax. The United States has had one for many years. I do not think that it is an ideal system, but such accounts as one can read of the effect of the capital gains

tax in the United States certainly do not lend support to some of the fears that have been expressed this afternoon.
I have before me an article by Mr. Walter A. Everitt in the Statist of 19th January, 1962, on the American capital gains tax. He states:
Paradoxically, the capital gains tax has helped the American investor to become richer. No one likes to pay taxes, and there is no easier way of avoiding the payment of capital gains tax than not to sell, and not selling has been the right policy in the past twenty years.
That at least gets rid of one idea about the American capital gains tax that it has been a disadvantage to investment in the United States.
There are a number of commentators on the principle of a capital gains tax, including the Board of Inland Revenue, who have seen no distinction in principle between the short-term and the longer-term capital gains. That was argued fully in the memorandum submitted by the Board of Inland Revenue to the Radcliffe Commission and in the minority Report of that Commission.
The hon. Member for Taunton (Mr. du Cann) is not in his place, but in an article in the Statist of 24th November, 1961, he said:
Many believe that the only acceptable capital gains tax will be one which treats short-term and long-term gains alike.
Our Amendment does not propose to treat short-term and long-term gains alike, at least not in the sense that they would be taxed on exactly the same basis. Our proposal, as the Chief Secretary has pointed out, provides for a tapering off of the amount of the assessment as the period between acquisition and disposal lengthens. That was to take account of the longer period of accrual of the capital gain and to make a set-off against the ultimate tax on realisation of the asset.
A good deal that has been wrong with our taxation system in recent years would not have needed this remedy had our definition of income not been so narrow. In that respect, our system of income taxation differs from many systems in other parts of the world. Some countries do not have a distinctive capital gains tax. They have a


more comprehensive definition of taxable income. We have not had a definition of income which embraces the sort of transactions to which the new tax and our tax are proposed to be applied.
Over forty years ago, the Royal Commission was concerned about the transactions that were escaping Income Tax, transactions upon which the Commission thought that the badge of trade might fairly be put. The Commission recommended that any profit recognisable as a business transaction—that is, any transaction in which the subject matter was acquired with a view to profitseeking—should be brought within the scope of the Income Tax. The Radcliffe Commission considered that recommendation many years after it was made and concluded that the decisions of the courts in many particular cases had gone a long way to remove some of the criticism of the weakness of the definition of Income Tax for tax purposes.
As the Chief Secretary and the Committee know, decided cases do not always govern the liability of comparable cases arising thereafter. Many of these cases have escaped taxation in the past because the local Commissioners of Income Tax have decided against them. Unless a case is stated for the High Court, that is the final conclusion of the matter. There is general public opinion in favour of widening the scope of taxation on gains which are at present outside the scope of the narrow definition of Income Tax. Our view is that any asset which is disposed of creates thereby expendable resources. An asset is disposed of, money is therefore in the hands of the holder and the question is whether the tax gatherer should take any part of the realisation of the asset.
The right hon. Gentleman said a few moments ago that he considered it unfair that an asset realised as a profit should pay a tax whereas an asset realised for the same amount of money as was paid at the time of acquisition should not attract tax. If in selling an asset a man merely gets his money back, we would not propose to tax it. If, however, he makes money on the transaction, if it is over a short period we, as in the case of the Government proposal, would propose to tax it in full. If he had held the asset for a longer

period, we would propose to reduce the amount of the assessment of the capital gain.
Whether the effect of this new tax will dissuade people from speculative activities on the Stock Exchange or in land one cannot say, but there are some remarkable happenings in the last few hours on an issue which has just been put on the market. In the Evening Standard of 14th May, there was a question mark after the heading Harder times for stags". One wondered what effect the new tax would have on those who were getting ready to fill up their forms to get an allotment in Ready-Mixed Concrete—which seems to be a suitable title for Her Majesty's Government. The stags, apparently, have been busier than ever This issue was oversubscribed sixty times.
Whereas it was anticipated a few days ago that the shares would open at a premium of ls. or 2s., they seem to have opened at a premium vastly in excess of that. Those who applied for 400 shares and were successful in the ballot were allotted 100. They will pay 24s. for each share. The shares opened this morning at 37s. 6d., they rose in the course of the day to 41s. 3d. and have settled down this afternoon at 39s. 6d. The Press says that this is a "bright light". We now have a guiding light and we also have a bright light. The guiding light is for the restraint of incomes and the bright light is for those who will make profits by stagging. Everyone who was successful in the ballot and was allotted 100 shares will have netted on the sale of the shares this afternoon £77 10s. This is the first harvest the Inland Revenue will have under the Government's new tax proposal. The tax has not dissuaded anyone. If I could have made £77 10s. this afternoon by filling up a form I should not have minded it having Income Tax on it. Obviously, many people are prepared to act in the same way.
That is the sort of thing the Government's proposals are intended to catch. Our proposals are intended to catch this kind of thing in respect of those who hold their shares for more than six months or a little longer than that. We see no obection in principle to the taxation of the longer-term capital gain, though on a reduced basis for the reasons that I have given.
The right hon. Gentleman said that it would be unfair to construct a long-term capital gains tax on transactions which began after Budget day. One has to make a start somewhere if one is to introduce a new tax at all. If we had proposed to have a valuation of all assets or, retrospectively, to go back to the date of acquisition and attempt to value them at the acquisition price, we should have had a thunder of objection from the benches opposite about retrospection and all the other charges that they would have made.
If we are to have a capital gains tax which will really stand up to criticism and, indeed, will meet with approval, it will have to be something better than that proposed by the Government. Also, the Government will have to make a beginning some time. Those who embarked on these transactions after the appointed day would know that the tax applied to them and it would be known that it would not apply to those who acquired their assets before the appointed day. That would govern the behaviour of individuals. I see no escape from that if we are to embark on a tax of this kind. If we are to adopt the philosophy of the right hon. Gentleman, we shall have to stick to the taxes we have and shall never be able to enlarge the scope of Income Tax and never be able to adjust it to the obvious social injustice and fiscal inequity of allowing large-scale expendable assets to go tax free while the earnings of the professional man, the executive and the worker generally are taxed up to the hilt.
Therefore, we have no hesitation in strongly pressing our Amendment on the Committee. We believe it to be the best thing we can devise as an alternative to the Government's proposals. This would at least make the beginning of a satisfactory tax. The proposals of the right hon. and learned Gentleman do not stand up and will not stand up. I believe that when the political purpose of the

tax diminishes it will go the way of the Excess Profits Levy introduced by the right hon. Member for Woodford (Sir W. Churchill) when he found that complaints were arising because of profit making out of rearmament. It lasted only two years. Whenever the political value of this tax goes, I believe that the tax will go with it. We propose one which would endure, would be modelled on the systems of other countries, and could be adjusted to the public conception of a better tax than the right hon. Gentleman is proposing.

Mr. B. T. Parkin: The Chief Secretary has made it clear that he is not open to conversion by the minority.
I rise only to lodge a strong protest against his murderous misuse of the English language in the earlier sentences of his speech where he described the problems outlined by my hon. and right hon. Friends as "conundra". I imagined the right hon. Gentleman describing the Trooping of the Colour to his nieces and explaining that some of the soldiers were beating "kettledra" some "side-dra" and others "bigdra". This word was not found in the English language, or in any other, before the 16th century. When Disraeli and Morley used the term in this House they used the plural "conundrums".
The Minister's claim to the fastidious use of Latin is as bogus as his pretence to an understanding of economics. We are accustomed to economists inventing their jargon as they go along, but if they are to murder Latin in the same way, there may be room even at this late hour in the discussion for a vigorous protest from a back bencher.

Question put, That the words proposed to be left out, to "three" in line 29, stand part of the Clause:—

The Committee divided: Ayes 264, Noes 188.

Division No. 195]
AYES
[5.46 p.m.


Aitken, W. T.
Bennett, F. M. (Torquay)
Black, Sir Cyril


Allan, Robert (Paddington, S.)
Bennett, Dr. Reginald (Gos &amp; Fhm)
Bowen, Roderic (Cardigan)


Amery, Rt. Hon. Julian
Berkeley, Humphry
Box, Donald


Atkins, Humphrey
Bevins, Rt. Hon. Reginald
Boyd-Carpenter, Rt. Hon. John


Baln'el, Lord
Biffen, John
Boyle, Sir Edward


Barber, Anthony
B'ggs-Davison, John
Bromley-Davenport,Lt. -Col. Sir Walter


Barlow, Sir John
Bingham, R. M.
Brooke, Rt. Hon. Henry


Barter, John
Birch, Rt. Hon. Nigel
Brooman-White, R.


Bell, Ronald
Bishop, F. P.
Brown, Alan (Tottenham)




Browne, Percy (Torrington)
Hirst, Geoffrey
Peel, John


Bryan, Paul
Hobson, Sir John
Percival, Ian


Buck, Antony
Holland, Philip
Peyton, John


Bullard, Denys
Hollingworth, John
Pickthorn, Sir Kenneth


Bullus, Wing Commander Eric
Holt, Arthur
Pike, Miss Mervyn


Burden, F. A.
Hooson, H. E.
Pilkington, Sir Richard


Butcher, Sir Herbert
Hope, Rt. Hon. Lord John
Pitman, Sir James


Campbell, Sir David (Belfast, S.)
Hopkins, Alan
Pitt, Miss Edith


Campbell, Gordon (Moray &amp; Nairn)
Hornby, R. P.
Pott, Percivall


Carr, Robert (Mitcham)
Hornsby-Smith, Rt. Hon. Dame
Prior-Palmer, Brig. Sir Otho


Cary, Sir Robert
Howard, Hon. G. R. (St. Ives)
Pym, Francis


Channon, H. P. G.
Howard, John (Southampton, Test)
Quennell, Mist J. M.


Chataway, Christopher
Hughes Hallett, Vice-Admiral John
Ramsden, James


Chichester-Clark, R,
Hulbert, Sir Norman
Redmayne, Rt. Hon. Martin


Clark, William (Nottingham, S.)
Hutchison, Michael Clark
Rees, Hugh


Cleaver, Leonard
Iremonger, T. L.
Rees-Davies, W. R.


Cole, Norman
Irvine, Bryant Godman (Rye)
Renton, David


Collard, Richard
James, David
Ridley, Hon. Nicholas


Cooke, Robert
Jennings, J. C.
Ridsdale, Julian


Cooper-Key, Sir Neill
Johnson, Dr. Donald (Carlisle)
Roberts, Sir Peter (Heeley)


Cordeaux, Lt.-Col. J, K,
Johnson, Eric (Blackley)
Robertson, Sir D. (C'thn's &amp; S'th'ld)


Corfield, F V
Johnson Smith, Geoffrey
Robinson, Rt. Hn. Sir R. (B'pool, S.)


Costain, A P
Jones, Rt. Hn. Aubrey (Hall Green)
Robson Brown, Sir William


Coulson Michael
Kaberry, Sir Donald
Ropner, Col. Sir Leonard


Courtney, Cdr. Anthony
Kerans, Cdr. J. S.
Royle, Anthony (Richmond, Surrey)


Craddock Sir Beresford
Kerr, Sir Hamilton
Russell, Ronald


Cowder, F. P.
Kershaw, Anthony
Scott-Hopkins, James


Cunningham, Knox
Kimball, Marcus
Seymour, Leslie


Currie, G. B. H.
Kirk, Peter
Sharpies, Richard


Dalkeith, Earl of
Kitson, Timothy
Shepherd, William


d'Avigdor-Goldsmid, Sir Henry
Lagden, Godfrey
Skeet, T. H. H.


de Ferranti, Basil
Lambton, Viscount
Smith, Dudley (Br'ntf'd &amp; Chiswick)


Donaldson, Cmdr. C. E. M.
Lancaster, Col. C. G.
Smithers, Peter


Doughty, Charles
Legge-Bourke, Sir Harry
Spearman, Sir Alexander


Drayson, G. B.
Lewis, Kenneth (Rutland)
Speir, Rupert


Drayson, G. B.
Lilley, F. J. P.
Stanley, Hon. Richard


du Cann, Edward
Lindsay, Sir Martin
Stevens, Geoffrey


Duncan, Sir James
Litchfield, Capt. John
Steward, Harold (Stockport, S.)


Duthie, Sir William
Lloyd, Rt.Hn.Geoffrey(Sut'nC'dfield)
Stodart, J. A.


Eden, John
Lloyd, Rt. Hon. Selwyn (Wirral)
Storey, Sir Samuel


Elliot, Cant. Walter (Carshalton)
Longden, Gilbert
Studholme, Sir Henry


Elliott,R. W.(Nwcaetle-upon-Tyne, N.)
Loveys, Walter H.
Summers, Sir Spencer


Emmet, Hon. Mrs, Evelyn
Lubbock, Eric
Tapsell, Peter


Errington, Sir Eric
Lucas-Tooth, Sir Hugh
Taylor, Edwin (Bolton, E.)


Farey-Jones, F. W.
Mac Arthur, Ian
Taylor, Frank (M'ch'st'r, Moss Side)


Farr, John
McLaren, Martin
Taylor, W. J. (Bradford, N.)


Fell, Anthony
Maclean, SirFitzroy(Bute&amp;N.Ayrs.)
Teeling, Sir William


Finlay, Graeme
McLean, Neil (Inverness)
Temple, John M.


Fisher, Nigel
Macleod, Rt. Hn. Iain (Enfield, W.)
Thatcher, Mrs. Margaret


Fletcher-Cooke, Charles
Macpherson, Niall (Dumfries)
Thomas Leslie (Canterbury)


Freeth, Denzil
Maddan, Martin
Thompson, Kenneth (Walton)


Gammans, Lady
Maginnis, John E.
Thornton-Kemsley, Sir Colin


Gibson-Watt, David
Manningham-Buller, Rt. Hn. Sir R.
Thorpe, Jeremy


Gilmour, Sir Jonn
Markhatn, Major Sir Frank
Tiley, Arthur (Bradford, W.)


Glyn Sir Richard (Dorset N)
Marlowe, Anthony
Touche, Rt. Hon. Sir Gordon


Goodhart, Philip
Marshall, Douglas
Turner, Colin


Gough, Frederick
Marten, Neil Mathew, Robert (Honiton)
van Straubenzee, W. R.


Gower, Raymond
Matthews, Gordon (Meriden)
Vane, W. M. F.


Grant, Rt. Hon. William
Mawby, Ray
Vaughan-Morgan, Rt. Hon. Sir John


Grant-Ferris, Wg. Cdr. R.
Maxwell-Hyslop, R. J.
Vickers, Miss Joan


Green, Alan
Maydon, Lt.-Cmdr. S. L. C.
Wade, Donald


Gresham Cooke, R.
Mills, Stratton
Walder, David


Grimond, Rt. Hon. J.
Miscampbell, Norman
Walker-Smith, Rt. Hon. Sir Derek


Grosvenor, Lt.-Col. R. C.
Montgomery, Fergus
Ward, Dame Irene


Gurden, Harold
More, Jasper (Ludlow)
Watkinson, Rt. Hon. Harold


Hamilton, Michael (Wellingborough)
Morrison, John
Wells, John (Maidstone)


Harris, Frederic (Croydon, N.W.)
Mott-Radclyffe, Sir Charles
Williams, Dudley (Exeter)


Harris, Reader (Heston)
Nabarro, Gerald
Wills, Sir Gerald (Bridgwater)


Harrison, Brian (Maldon)
Nicholls, Sir Harmar
Wilson, Geoffrey (Truro)


Harrison, Col. Sir Harwood (Eye)
Nicholson, Sir Godfrey
Wise, A. R.


Harvey, Sir Arthur Vere (Macclesf'd)
Noble, Michael
Wolrige-Gordon, Patrick


Harvie Anderson, Miss
Nugent, Rt. Hon. Sir Richard
Wood, Rt. Hon. Richard


Hastings, Stephen
Oakshott, Sir Hendrie
Woodhouse, C. M.


Heald, Rt. Hon. Sir Lionel
Orr-Ewing, Sir Ian
Woollam, John


Henderson, John (Cathcart)
Osborne, Sir Cyril (Louth)
Worsley, Marcus


Hiley, Joseph
Page, Graham (Crosby)
Yates, William (The Wrekin)


Hill, Dr. Rt. Hon. Charles (Luton)
Page, John (Harrow, West)



Hill, Mrs. Eveline (Wythenshawe)
Pannell, Norman (Kirkdale)
TELLERS FOR THE AYES:


Hill, J. E. B. (S. Norfolk)
Partridge, E.
Mr. Batsford and Mr. Ian Fraser.


Hinchingbrooke, Viscount
Pearson, Frank (Clitheroe)





NOES


Ainsley, William
Hayman, F. H.
Parker, John


Albu, Austen
Healey, Denis
Parkin, B. T.


Allaun, Frank (Salford, E.)
Henderson, Rt.Hn.Arthur(Rwly Regis)
Pavitt, Laurence


Awbery, Stan
Herbison, Miss Margaret
Pearson, Arthur (Pontypridd)


Bacon, Miss Alice
Hewitson, Capt. M.
Peart, Frederick


Baxter, William (Stirlingshire, W.)
Hill, J. (Midlothian)
Pentland, Norman


Beaney, Alan
Holman, Percy
Plummer, Sir Leslie


Bellenger, Rt. Hon. F. J.
Houghton, Douglas
Popplewell, Ernest


Bence, Cyril
Howell, Charles A.(Perry Barr)
Prentice, R. E.


Bennett, J. (Glasgow, Bridgeton)
Howell, Denis (Small Heath)
Price, J. T. (Westhoughton)


Benson, Sir George
Hoy, James H.
Probert, Arthur


Blackburn, F.
Hughes, Cledwyn (Anglesey)
Randall, Harry


Blyton, William
Hughes, Emrys (S. Ayrshire)
Rankin, John


Boardman, H.
Hughes, Hector (Aberdeen, N.)
Reynolds, G. W.


Bottomley, Rt. Hon. A. G.
Hunter, A. E.
Rhodes, H.


Bowden, Rt. Hn. H. W.(Leics, S.W.)
Hynd, H. (Accrington)
Roberts, Albert (Normanton)


Bowles, Frank
Hynd, John (Attercliffe)
Roberts, Goronwy (Caernarvon)


Boyden, James
Irvine, A. J. (Edge Hill)
Robertson, John (Paisley)


Braddock, Mrs. E. M.
Irving, Sydney (Dartford)
Robinson, Kenneth (St. Pancras, N.)


Brockway, A. Fenner
Jay, Rt. Hon. Douglas
Rodgers, W. T. (Stockton)


Broughton, Dr. A. D. D.
Jeger, George
Ross, William


Brown, Rt. Hon. George (Belper)
Jenkins, Roy (Stechford)
Royle, Charles (Salford, West)


Brown, Thomas (Ince)
Johnson, Carol (Lewisham, S.)
Shinwell Rt Hon E.


Butler, Herbert (Hackney, C.)
Jones, Dan (Burnley)
Short, Edward


Callaghan, James
Jones, Jack (Rotherham)
Silverman, Sydney (Nelson)


Castle, Mrs. Barbara
Jones, J. Idwal (Wrexham)
Skeffington, Arthur


Chapman, Donald
Jones, T. W. (Merioneth)
Slater Joseph (Sedgefield)


Cliffe, Michael
Kelley, Richard
Smith, Ellis (Stoke, S.)


Collick, Percy
Key, Rt. Hon. C. W.
Sorensen, R. W.


Collick, Percy
King, Dr. Horace
Soskice, Rt. Hon. Sir Frank


Craddock, George (Bradford, S.)
Lee, Frederick (Newton)
Spriggs, Leslie


Cronin, John
Lee, Miss Jennie (Cannock)
Steele, Thomas


Crosland, Anthony
Lever, L. M. (Ardwick)
Stones, William


Cullen, Mrs. Alice
Lewis, Arthur (West Ham, N.)
Strachey, Rt. Hon. John


Darling, George
Loughlin, Charles
Strauss, Rt. Hn. G. R. (Vauxhall)


Davies, G. Elfed (Rhondda, E.)
Mahon, Dr. J. Dickson
Stross,Dr.Barnett(Stoke-on-Trent,C.)


Davies, Harold (Leek)
McCann, John
Swain, Thomas


Davies, Ifor (Gower)
MacDermot, Niall
Taylor, Bernard (Mansfield)


Davies, S. O. (Merthyr)
Mclnnes, James
Thomas, Iorwerth (Rhondda, W.)


Diamond, John
McKay, John (Wallsend)
Thompson, Dr. Alan (Dunfermilne)


Dodds, Norman
Mackie, John (Enfield, East)
Thomson, G. M. (Dundee, E.)


Donnelly, Desmond
McLeavy, Frank
Wainwright, Edwin


Ede, Rt. Hon. C.
MacMillan, Malcolm (Western Isles)
Warbey, William


Edwards, Rt. Hon. Ness (Caerphilly)
Mapp, Charles
Watkins, Tudor


Edwards, Robert (Bilston)
Mason, Roy
Weitzman, David


Edwards, Walter (Stepney)
Mayhew, Christopher
Wells, William (Walsall, N.)


Evans, Albert
Mendelson, J. J.
White, Mrs. Eirene


Finch, Harold
Millan, Bruce
Whitlock, William


Fitch, Alan
Milne, Edward
Wilkins, W. A.


Fletcher, Eric
Mitchison, G. R.
Willey, Frederick


Foot. Michael (Ebbw Vale)
Monslow, Walter
Williams, D. J. (Neath)


Forman, J. C.
Moody, A. S.
Williams, LI. (Abertillery)


Fraser, Thomas (Hamilton)
Morris, John
Williams, W. R. (Openshaw)


Galpern, Sir Myer
Moyle, Arthur
Willis, E. G. (Edinburgh, E.)


George, LadyMeganLloyd(Crmrthn)
Mulley, Frederick
Wilson, Rt. Hon. Harold (Huyton)


Gourlay, Harry
Neal, Harold
Winterbottom, R. E.


Greenwnod, Anthony
Noel-Baker,Rt.Hn.Philip(Derby,S.)
Woodburn, Rt. Hon. A.


Grey, Charles
Oliver, G. H.
Woof, Robert


Griffiths, David (Rother Valley)
Oram, A. E.
Wyatt, Woodrow


Griffiths, Rt. Hon. James (Llanelly)
Oswald, Thomas
Yates, Victor (Ladywood)


Griffiths, W. (Exchange)
Owen, Will
Zilliacus, K.


Gunter, Ray
Paget, R. T.



Hale, Leslie (Oldham, W.)
Pannell, Charles (Leeds, W.)
TELLERS FOR THE NOES:


Hall, Rt. Hn. Glenvil (Colne Valley)
Pargiter, G. A.
Mr. Lawson and Mr. Redhead.

Amendment proposed: In page 10, line 29, leave out "three" and insert "ten".—[Mr. Mackie.]

Question put, That "three" stand part the clause:—

The Committee divided: Ayes 257, Noes 194.

Division No. 196.]
AYES
[5.57 p.m.


Aitken, W. T.
Barter, John
Biffen, John


Allan, Robert (Paddington, S.)
Batsford, Brian
Biggs-Davison, John


Amery, Rt. Hon. Julian
Bell, Ronald
Bingham, R. M.


Atkins, Humphrey
Bennett, F. M. (Torquay)
Birch, Rt. Hon. Nigel


Balniel, Lord
Bennett, Dr. Reginald (Gos &amp; Fhm)
Bishop, F. P.


Barber, Anthony
Berkeley, Humphry
Black, Sir Cyril


Barlow, Sir John
Bevins, Rt. Hon. Reginald
Box, Donald




Boyd-Carpenter, Rt. Hon. John
Hiley, Joseph
Pearson, Frank (Clitheroe)


Boyle, Sir Edward
Hill, Dr. Rt. Hon. Charles (Luton)
Peel, John


Bromley-Davenport,Lt.-Col.SirWalter
Hill, Mrs. Eveline (Wythenshawe)
Percival, Ian


Brooke, Rt. Hon. Henry
Hill, J. E. B. (S. Norfolk)
Peyton, John


Brooman-White, R.
Hinchingbrooke, Viscount
Pickthorn, Sir Kenneth


Brown, Alan (Tottenham)
Hirst, Geoffrey
Pike, Miss Mervyn


Browne, Percy (Torrington)
Hobson, Sir John
Pilkington, Sir Richard


Bryan, Paul
Holland, Philip
Pitman, Sir James


Buck, Antony
Hollingworth, John
Pitt, Miss Edith


Bullard, Denys
Hope, Rt. Hon. Lord John
Pott, Percivall


Bullus, Wing Commander Eric
Hopkins, Alan
Prior-Palmer, Brig. Sir Otho


Burden, F. A.
Hornby, R. P.
Proudfoot, Wilfred


Butcher, Sir Herbert
Hornsby-Smith, Rt. Hon. Dame P.
Pym, Francis


Campbell, Sir David (Belfast, S.)
Howard, Hon. G. R. (St. Ives)
Quennell, Miss J. M.


Campbell, Gordon (Moray &amp; Nairn)
Howard, John (Southampton, Test)
Ramsden, James


Carr, Robert (Mitcham)
Hughes Hallett, Vice-Admiral John
Redmayne, Rt. Hon. Martin


Cary, Sir Robert
Hulbert, Sir Norman
Rees, Hugh


Channon, H. P. G.
Hutchison, Michael Clark
Rees-Davies, W. R.


Chataway, Christopher
Iremonger, T. L.
Renton, David


Chichester-Clark, R.
Irvine, Bryant Godman (Rye)
Ridley, Hon. Nicholas


Clark, William (Nottingham, S.)
James, David
Ridsdale, Julian


Cleaver, Leonard
Jennings, J. C.
Roberts, Sir Peter (Heeley)


Cole, Norman
Johnson, Dr. Donald (Carlisle)
Robertson, Sir D. (C'thn's &amp; S'th'ld)


Collard, Richard
Johnson, Eric (Blackley)
Robinson, Rt. Hn. Sir R. (B'pool, S.)


Cooke, Robert
Johnson Smith, Geoffrey
Robson Brown, Sir William


Cooper-Key, Sir Neill
Jones, Rt. Hon. Aubrey (Hall Green)
Ropner, Col. Sir Leonard


Cordeaux, Lt.-Col. J. K.
Kerans, Cdr. J. S.
Royle, Anthony (Richmond, Surrey)


Corfield, F. V.
Kerr, Sir Hamilton
Russell, Ronald


Costain, A. P.
Kershaw, Anthony
Scott-Hopkins, James


Coulson, Michael
Kimball, Marcus
Seymour, Leslie


Courtney, Cdr. Anthony
Kirk, Peter
Sharpies, Richard


Craddock, Sir Beresford
Kitson, Timothy
Shepherd, William


Crowder, F. P.
Lagden, Godfrey
Skeet, T. H. H.


Cunningham, Knox
Lambton, Viscount
Smith, Dudley (Br'ntf'd &amp; Chiswick)


Currie, G. B. H.
Lancaster, Col. C. G.
Smithers, Peter


Dalkeith, Earl of
Legge-Bourke, Sir Harry
Smyth, Brig. Sir John (Norwood)


d'Avigdor-Goldsmid, Sir Henry
Lewis, Kenneth (Rutland)
Spearman, Sir Alexander


de Ferranti, Basil
Lilley, F. J. P.
Speir, Rupert


Donaldson, Cmdr. C. E. M.
Lindsay, Sir Martin
Stanley, Hon. Richard


Doughty, Charles
Litchfield, Capt. John
Stevens, Geoffrey


Drayson, G. B.
Lloyd, Rt.Hn.Geoffrey(Sut'nC'dfield)
Steward, Harold (Stockport, S.)


du Cann, Edward
Lloyd, Rt. Hon. Selwyn (Wirral)
Stodart, J. A.


Duncan, Sir James
Longden, Gilbert
Storey, Sir Samuel


Duthie, Sir William
Loveys, Walter H.
Studholme, Sir Henry


Eden, John
Lucas-Tooth, Sir Hugh
Summers, Sir Spencer


Elliot, Capt. Walter (Carshalton)
MacArthur, Ian
Tapsell, Peter


Elliott,R.W.(Nwcastle-upon-Tyne,N.)
McLaren, Martin
Taylor, Edwin (Bolton, E.)


Emmet, Hon. Mrs. Evelyn
Maclean,SlrFitzroy(Bute&amp;N.Ayrs.)
Taylor, Frank (M'ch'st'r, Moss Side)


Errington, Sir Eric
McLean, Neil (Inverness)
Taylor, W. J. (Bradford, N.)


Farey-Jones, F. W.
Macleod, Rt. Hn. Iain (Enfield, W.)
Teeling, Sir William


Farr, John
McMaster, Stanley R.
Temple, John M.


Fell, Anthony
Macpherson, Niall (Dumfries)
Thatcher, Mrs. Margaret


Finlay, Graeme
Maddan, Martin
Thomas, Leslie (Canterbury)


Fisher, Nigel
Maginnis, John E.
Thompson, Kenneth (Walton)


Fletcher-Cooke, Charles
Manningham-Buller, Rt. Hn. Sir R.
Thornton-Kemsley, Sir Colin


Freeth, Denzil
Markham, Major Sir Frank
Tiley, Arthur (Bradford, W.)


Gammans, Lady
Marlowe, Anthony
Touche, Rt. Hon. Sir Cordon


Gibson-Watt, David
Marshall, Douglas
Turner, Colin


Gilmour, Sir John
Marten, Neil
van Straubenzee, W. R.


Glyn, Sir Richard (Dorset, N.)
Mathew, Robert (Honiton)
Vane, W. M. F.


Goodhart, Philip
Matthews, Gordon (Meriden)
Vaughan-Morgan, Rt. Hon. Sir John


Goodhew, Victor
Mawby, Ray
Vickers, Miss Joan


Gough, Frederick
Maxwell-Hyslop, R. J.
Walder, David


Gower, Raymond
Maydon, Lt.-Cmdr. S. L. C.
Walker-Smith, Rt. Hon. Sir Derek


Grant, Rt. Hon. William
Mills, Stratton
Watkinson, Rt. Hon. Harold


Grant-Ferris, Wg. Cdr. R.
Miscampbell, Norman
Wells, John (Maidstone)


Green, Alan
Montgomery, Fergus
Williams, Dudley (Exeter)


Gresham Cooke, R.
More, Jasper (Ludlow)
Wills, Sir Cerald (Bridgwater)


Grosvenor, Lt.-Col. R. G.
Morrison, John
Wilson, Geoffrey (Truro)


Gurden, Harold
Mott-Radclyffe, Sir Charles
Wise, A. R.


Hamilton, Michael (Wellingborough)
Nabarro, Gerald
Wolrige-Gordon, Patrick


Harris, Frederic (Croydon, N.W.)
Nicholls, Sir Harmar
Wood, Rt. Hon. Richard


Harris, Reader (Heston)
Nicholson, Sir Godfrey
Woodhouse, C. M.


Harrison, Brian (Maldon)
Nugent, Rt. Hon. Sir Richard
Woollam, John


Harrison, Col. Sir Harwood (Eye)
Oakshott, Sir Hendrle
Worsley, Marcus


Harvey, Sir Arthur Vere (Macclesf'd)
Orr-Ewing, C. Ian
Yates, William (The Wrekin)


Harvie Anderson, Miss
Osborne, Sir Cyril (Louth)



Hastings, Stephen
Page, Graham (Crosby)
TELLERS FOR THE AYES:


Heald, Rt. Hon. Sir Lionel
Panned, Norman (Kirkdale)
Mr. Michael Noble and


Henderson, John (Cathcart)
Partridge, E.
Mr. Ian Fraser.




NOES


Ainsley, William
Awbery, Stan
Beaney, Alan


Albu, Austen
Bacon, Miss Alice
Bellenger, Rt. Hon. F. J.


Allaun, Frank (Salford, E.)
Baxter, William (Stirlingshire, W.)
Bence, Cyril




Bennett, J. (Glasgow, Bridgeton)
Holt, Arthur
Peart, Frederick


Benson, Sir George
Hooson, H. E.
Pentland, Norman


Blackburn, F.
Houghton, Douglas
Plummer, Sir Leslie


Blyton, William
Howell, Charles A. (Perry Barr)
Popplewell, Ernest


Boardman, H.
Howell, Denis (Small Heath)
Prentice, R. E.


Bottomley, Rt. Hon. A. G.
Hoy, James H.
Price, J. T. (Westhoughton)


Bowden, Rt. Hn. H.W. (Leics. S.W.)
Hughes, Ciedwyn (Anglesey)
Probert, Arthur


Bowen, Roderic (Cardigan)
Hughes, Emrys (S. Ayrshire)
Randall, Harry


Bowles, Frank
Hughes, Hector (Aberdeen, N.)
Rankin, John


Boyden, James
Hunter, A. E.
Rhodes, H.


Braddock, Mrs. E. M.
Hynd, H. (Accrington)
Roberts, Albert (Normanton)


Brockway, A. Fenner
Hynd, John (Attercliffe)
Roberts, Goronwy (Caernarvon)


Broughton, Or. A. D. D.
Irvine, A. J. (Edge Hill)
Robertson, John (Paisley)


Brown, Rt. Hon. George (Belper)
Irving, Sydney (Dartford)
Robinson, Kenneth (St. Pancras, N.)


Brown, Thomas (Ince)
Jay, Rt. Hon. Douglas
Rodgers, W. T. (Stockton)


Butler, Herbert (Hackney, C.)
Jeger, George
Ross, William


Callaghan, James
Jenkins, Roy (Stechford)
Royle, Charles (Salford, West)


Castle, Mrs. Barbara
Johnson, Carol (Lewisham, S.)
Shinwell, Rt. Hon. E.


Chapman, Donald
Jones, Dan (Burnley)
Short, Edward


Cliffe, Michael
Jones, Jack (Rotherham)
Silverman, Sydney (Nelson)


Collick, Percy
Jones, J. Idwal (Wrexham)
Skeffington, Arthur


Craddock, George (Bradford, S.)
Jones, T. W. (Merioneth)
Slater, Joseph (Sedgefield)


Cronin, John
Kelley, Richard
Smith, Ellis (Stoke, S.)


Crosland, Anthony
Key, Rt. Hon. C. W.
Sorensen, R. W.


Cullen, Mrs. Alice
King, Dr. Horace
Soskice, Rt. Hon. Sir Frank


Darling, George
Lee, Frederick (Newton)
Spriggs, Leslie


Davies, G. Elfed (Rhondda, E.)
Lee, Miss Jennie (Cannock)
Steele, Thomas


Davies, Harold (Leek)
Lever, L. M. (Ardwick)
Stones, William


Davies, Ifor (Gower)
Lewis, Arthur (West Ham, N.)
Strachey, Rt. Hon. John


Davies, S. O. (Merthyr)
Loughlin, Charles
Strauss, Rt. Hn. G. R. (Vauxhall)


Diamond, John
Lubbock, Eric
Stross,Dr.Barnett(Stoke-on-Trent, C.)


Dodds, Norman
Mabon, Dr. J. Dickson
Swain, Thomas


Donnelly, Desmond
McCann, John
Swingler, Stephen


Ede, Rt. Hon. C.
MacDermot, Niall
Taylor, Bernard (Mansfield)


Edwards, Rt. Hon. Ness (Caerphilly)
Mclnnes, James
Thomas, Iorwerth (Rhondda, W.)


Edwards, Robert (Bilston)
McKay, John (Wallsend)
Thompson, Dr. Alan (Dunfermline)


Edwards, Walter (Stepney)
Mackie, John (Enfield, East)
Thomson, G. M. (Dundee, E.)


Evans, Albert
McLeavy, Frank
Thorpe, Jeremy


Finch, Harold
MacMillan, Malcolm (Western Isles)
Wade, Donald


Fitch, Alan
Mapp, Charles
Wainwright, Edwin


Fletcher, Eric
Mason, Roy
Warbey, William


Foot, Michael (Ebbw Vale)
Mayhew, Christopher
Watkins, Tudor


Forman, J. C.
Millan, Bruce
Weitzman, David


Fraser, Thomas (Hamilton)
Milne, Edward
Wells, William (Walsall, N.)


Galpern, Sir Myer
Mitchison, G. R.
White, Mrs. Eirene


George, Lady MeganLloyd(Crmrthn)
Monslow, Walter
Whitlock, William


Gourlay, Harry
Moody, A. S.
Wilkins, W. A.


Greenwood, Anthony
Morris, John
Willey, Frederick


Grey, Charles
Moyle, Arthur
Williams, D. J. (Neath)


Griffiths, David (Rother Valley)
Mulley, Frederick
Williams, LI. (Abertillery)


Griffiths, Rt. Hn. James (Llanelly)
Neal, Harold
Williams, W. R. (Openshaw)


Griffiths, W. (Exchange)
Noel-Baker,Rt.Hn.Philip(Derby,S.)
Willis, E. G. (Edinburgh, E.)


Grimond, Rt. Hon. J.
Oliver, G. H.
Wilson, Rt. Hon. Harold (Huyton)


Gunter, Ray
Oram, A. E.
Winterbottom, R. E.


Hale, Leslie (Oldham, W.)
Oswald, Thomas
Woodburn, Rt. Hon. A.


Hall. Rt. Hn. Glenvll (Coins Valley)
Owen, Will
Woof, Robert


Hayman, F. H.
Paget, R. T.
Wyatt, Woodrow


Healey, Denis
Panned, Charles (Leeds, W.)
Yates, Victor (Ladywood)


Henderson,Rt.Hn.Arthur(RwlyRegis)
Pargiter, G. A.
Zilliacus, K.


Herbison, Miss Margaret
Parker, John



Hewitson, Capt. M.
Parkin, B. T.
TELLERS FOR THE NOES:


Hill, J. (Midlothian)
Pavitt, Laurence
Mr. Lawson and Mr. Redhead.


Holman, Percy
Pearson, Arthur (Pontypridd)

Mr. du Cann: I beg to move, in page 11, line 4, at the end to insert:
and
(d) there shall be allowed as a credit in assessing the income tax and profits tax with which a person is to be charged a sum equal to the amount of any tax payable in respect of the gains under the law of a territory outside the United Kingdom.
This matter can be very shortly explained. Indeed, the purpose of tabling the Amendment is largely to obtain elucidation and clarification. Although gains made on the disposition of chargeable assets abroad are taxable under the provisions of the Bill, the Bill

none the less does not appear to contain any provision to give relief for foreign taxes levied in respect of those gains.
It will be appreciated that as a nation we are encouraged to invest abroad. Indeed, there are good reasons for doing so, particularly in the underdeveloped countries and especially those in the British Empire. It will also be appreciated that foreign taxation systems are very much changing things. Although from some points of view this may appear to be a theoretical point, it must


be right that the Bill should provide for future contingencies.
If one accepts the view that it would be equitable to allow relief in respect of this other taxation in other countries, should it be levied at any time, I hope that my hon. Friend the Economic Secretary will be able to make it clear to those of us who at the moment do not understand the position, first, whether the Bill does so, and, secondly, if it does not, whether he will be prepared to consider the matter with a view, if the Amendment is not acceptable in its present form, to introducing another which would cope with the position.

The Economic Secretary to the Treasury (Mr. Anthony Barber): My hon. Friend has explained clearly the purpose of the Amendment, and I hope that, quite briefly, I shall be able to convince him that it is unnecessary. I am grateful to him for giving me the opportunity of making the position clear, because I realise that this is a point of considerable importance.
The general position is that if a United Kingdom resident is charged overseas tax on a short-term gain made overseas, under the existing law relief would be due either under the provisions of an agreement with the other country, or, where there was no agreement, or the agreement did not cover the particular case, it would be given unilaterally.
As my hon. Friend knows, there are a number of countries with which we have agreements which contain express provisions to the effect that a resident of one of the countries is, in general, to be exempt from tax in the other country on gains from the sale or exchange of capital assets. These provisions do not, in general, apply where a resident of one country carries on a trade or business in the other through a permanent establishment. Moreover, there are many agreements which contain no provisions dealing expressly with capital gains, but both these types of case would normally fall under the general provisions in agreements under which a taxpayer resident in the United Kingdom can claim credit for tax paid in the other country on income arising from sources in that country.
Now I come to what I can describe as the ultimate safeguard. If, for any reason, relief was not due under an agreement, it would be due under the provisions for unilateral relief contained in Section 348 of the Income Tax Act, 1952, and in the Seventeenth Schedule to that Act. These provide that credit for tax paid in an overseas country on income arising in that country shall be allowed as credit against United Kingdom Tax or Profits Tax chargeable in respect of that income.
It is true that subsection (4) of Section 348 limits this provision to
taxes which are charged on income or profits and correspond to income tax or the profits tax in the United Kingdom".
but, as the United Kingdom will be imposing taxes on short-term gains as part of its Income Tax and Profits Tax, any tax imposed by an overseas country on these gains would fall within this definition.
Consequently, as my hon. Friend will see, in all circumstances relief would be provided either under the relevant provisions of an agreement, or unilaterally, so there would be no question of double taxation. With that explanation, I hope that my hon. Friend will withdraw the Amendment.

Mr. du Cann: In view of the extremely clear and helpful explanation which my hon. Friend has been good enough to give, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

6.15 p.m.

Mr. Mitchison: I beg to move, in page 11, line 8, to leave out "any previous year" and to insert:
any of the three immediately preceding years".
I am correcting a slip in the drafting of the Amendment on the Notice Paper, which reads
either of the three immediately preceding years".
In view of what has been said about conundrums I desire to take no chances.
The question here is over what period, or for what period, one is allowed to carry forward losses which have been incurred against gains. Assuming that a person disposes of an asset at a loss in the year one, is he allowed to carry


that on indefinitely, or is there to be some limit to the time for which he may carry it forward? We suggest that year four is a convenient limit for this purpose.
There is no long argument to be produced about this point. It applies, of course, to the Government's proposals. We have finished with our proposals. The Government's proposals are intended to be a way of dealing with what they regard as the equivalent of income for these purposes, that is, short-term speculative gains. If we are dealing with such gains, it does not seem right that a person should be able to set off against them losses which were incurred a number of years ago when, whatever their character when they were first incurred, they have no longer any connection with the kind of subject matter with which the Bill seeks to deal.
It seems wrong that a person should be able to set off in, say, 1980, losses which he may incur in the current year. It is really the incongruity of the thing which calls for some limit, and the character of the gains which the Government are trying to catch. If that is the character of the gains there ought to be something similar in the losses which can be set off against them.
I have another feeling. I do not want to follow the example of the Evening Standard, and add to the number of methods by which people can illegally avoid the tax without too much fear of detection, but it is obvious that if we allow losses to be carried forward for a long time we will open the door to a rather simple system of fraud. One will only have to find a man who has incurred losses a long time ago and put through what one hopes will be a good transaction in his name. If it proves to be a good transaction and one makes a gain, it will be set off against his losses.
I think that the habit, in taxation matters, of allowing people to accumulate losses—though I know it exists in certain respects already—is for that reason and others, one which ought not to be extended. There has been a practice of companies acquiring a value not because they were carrying on any trade, not because they had any assets, but because they had a nice collection of losses against which future gains

could be set off. Though there will be limits set on this, and rightly so, I do not think that this is a practice that we ought to encourage.

Mr. Geoffrey Stevens: The hon. and learned Gentleman's argument is very interesting, but he is probably aware that one of the largest industrial concerns in the country, flourishing and providing good employment and good exports, incurred losses for the first twenty years of its existence.

Mr. Mitchison: I dare say it did, but I cannot see what that has to do with what I am talking about. I am saying that I do not like the idea of individuals or companies walking about labelled, "I have a fine collection of losses".
The same thing goes for bits of property. We have all seen in the newspapers that such-and-such a piece of property has some nice tax losses attached to it against which any future profit can be set off. This sort of thing ought not to be extended. I am not talking about the question of limiting it further. I am simply saying that I do not think it ought to be extended.
For those two reasons, which I now summarise, I ask the Committee to accept the Amendment. The reasons are, first, that the object of the Government's measure is to tax short-term speculative gains, and it seams inconsistent to allow people to set off against them what I might call "ancient losses" which have long lost the speculative character they may have had in the past. I am talking about the Government's measure, not about the Amendment which was rejected.
My second reason is that it is a bad principle to set up classes of people who are valuable for having lost money in the past and are a possible instrument to fraud if transactions can be put through in their names.

Mr. Barber: As the hon. and learned Member for Kettering (Mr. Mitchison) explained, the purpose of this Amendment is to restrict the carry-forward of losses under Case VII. As the Bill is at present drafted, a taxpayer who has a Case VII loss in a year can carry it forward indefinitely to set against short-term gains in any later year. Under the


Amendment the carry-forward would be restricted to a period of three years following the year of the loss.
The provisions in the Bill regarding Case VII losses correspond to the existing loss provisions in the Income Tax Acts. A loss incurred in a trade carried on by a taxpayer can be carried forward indefinitely to be set off against his profits from the trade in question in a later year. Prior to 1952 there was a six-year limit for the carrying forward of trading losses, but following the recommendations of the Millard Tucker Committee on the Taxation of Trading Profits the limit was removed in the Finance Act of 1952.
If the hon. and learned Member considers that the analogy of trading losses is not a particularly good one, I should add that if a loss is incurred by the taxpayer in a transaction such that any profit would be assessable under Case VI of Schedule D, the loss can be set off against the profits arising from any transaction in respect of which he is assessable under Case VI in the year of loss or in any subsequent year without limit. Here again, there used to be a six-year limit.
The hon. and learned Member thought that there was some incongruity in the position laid down in the Bill, but there is certainly nothing new in the principle which is applied in the Bill. On the contrary, the provision is in line with the principle which is already applied, not only to Case I, but also to Case VI. The hon. and learned Member talked about consistency. I should have thought, since the whole scheme of the Bill is to treat short-term gains as income for all purposes, it is only consistent to apply in the Case VII sphere the rules which apply in other connections about the carry-forward of losses for set-off against future profits.
The fact that Case VII liability is determined by reference to a time limit, which was a point made by the hon. and learned Member, is no justification for making a special distinction because the essential principle, surely, is to stamp a transaction as of an income-producing nature if it is carried out within the time limit. This principle is surely equally applicable in relation to losses. Once a Case VII loss has arisen from

the acquisition and disposal of an asset, there should be no special time limit on the carry-forward of such a loss against gains which are subject to tax under Case VII.
The hon. and learned Member said that there was no long argument to be made over this. I think that I can sum up my reply briefly by saying that in my view the proposed Amendment is illogical, inconsistent and also unfair. For these reasons, I hope that the Committee will reject it.

Mr. Mitchison: That comprehensive answer omitted half the argument, as comprehensive answers usually do. The hon. Gentleman said nothing whatever about the second point which I made, but I made it quite clear that there were two points.
Dealing with what he has said, it is not the terms of the Statute which I am considering so much as what the Government say their object is. If the object is to deal with speculative short-term gains, the long conservation of losses which may be appropriate in trading matters, or even under Case VI, seems somewhat inappropriate. I like to concede anything I can to the hon. Gentleman and I think that he has strict logic on his side when he says that once a speculative loss always a speculative loss, that was the way it arose and that is all that matters. He did not answer my second point. I feel uneasy about it. I do not think it right to leave these rather obvious loopholes, although there are so many loopholes in the Government's proposals that one more or less may not matter much.
For these somewhat cynical reasons I shall ask leave, with a reservation, to withdraw—

Mr. Diamond: No.

Mr. Mitchison: I beg pardon. I shall not ask leave to withdraw the Amendment, but await with interest the comments which my hon. Friend the Member for Gloucester (Mr. Diamond) has to make if he catches your eye, Sir Robert.

Mr. Diamond: I am most grateful to you, Sir Robert, that I have succeeded in catching your eye before my hon. and learned Friend the Member for Kettering (Mr. Mitchison) completed his sentence.


I hope that he will not think me discourteous when I say that I think he was considerably over-generous in acknowledging the logic of the Government, for there was little logic there. The whole basis of the small answer which the Economic Secretary devoted to the main argument of my hon. and learned Friend—the very short part of his answer which was relevant to the question at all—was, once a speculative loss, always a speculative loss, but this depends on the loss having been made willy-nilly.
When we take the parallel of an ordinary trading profit we find that the person enters on a series of trading transactions. For the sake of convenience the line is drawn at the end of the year and it is determined whether he has made losses or profits. It is a continuing trade, in which he is endeavouring the whole time to make profits. Because he is endeavouring to make profits, taxability arises. During the course of making profits he may, as the hon. Member for Portsmouth, Langstone (Mr. Stevens) said, make losses for twenty years in the course of reaching those profits. He is allowed to set off those losses because dividing the trading by one year intervals is highly artificial. The endeavour is to take the whole life of the business and see what profit or loss it has made over the whole life.
If, during the early years, it had made a loss and that loss had been taken into account in the whole of the assessment, the profits in the life of the business would have been over-assessed. This is not a question of an investor endeavouring to make profits over a whole period, but deliberately making a loss for this purpose by deliberately selling part of his investments which have gone down in a period short of six months and keeping those investments which have gone up for a period of six months or more. If we took the whole thing together and valued everything there would be some justification, but that is not being done.
It is being said to the taxpayer, "You have perfect freedom to make yourself liable to relief from tax in respect of your losing investments and to make yourself free from tax on the profits of your winning investments. That being

the case will you, Mr. Taxpayer, decide which investments it is now convenient to sell, it being just on six months from the time at which you bought them?" No investor has one stock, one share, or one debenture. He holds a series of stocks, shares and debentures, generally spreading over a variety of companies, some of which have gone up and some down. He will take the greatest possible care to sell those on which there are losses before the six months is up. Why is it right, in these circumstances, that this should be compared with the wholly different approach of a trading business, or even with Case VI, where it is the intention to make a profit over the whole period and the reason for the setting off of losses is merely that we would be taxing doubly if profits were made over the entirety of taxation of certain profits?
6.30 p.m.
I say to my hon. and learned Friend that I think, as is consistent with his character, he is being over-generous and over-courteous to the Government in accepting, up to a point, their argument. I would say that there has been no justification for what has been said by the Economic Secretary. The first part of his reply was wholly irrelevant to this issue, comparing, as he did, the setting off of losses against profits of ordinary businesses. There is no comparison there.
What we are saying is that we have to take into account that the investor has a complete option to decide not whether he has made a profit or a loss on the whole of his investments, but whether he has made a profit or a loss on certain of his investments and by realising those investments bringing them within taxability or freedom from tax at a given point of time. By realising his losing investments he can get freedom from tax on them for all time. He sells two days later, one day before and one day after the six months' period. On his winning investment he escapes completely.
In this way he will be building up an enormous store of losses just because there is an opportunity given to him of handling his investment as he thinks fit. This will lead to enormous tax avoidance. This is not a method of collecting tax, but of collecting losses


and building them up. They will be particularly juicy losses—losses for sale. We shall have calls in the London streets, "Who will buy my losses?" Anyone who has nice fat Case VII profits on which to pay tax will lean out of the window at teatime on Sundays and hear the bell. Crumpets? No, lovely big losses under Case VII. That is what it will be.
I hope that the Economic Secretary will turn his mind to seeing what the real comparison is and whether there is any justification for giving freedom to the investor to determine his losses and exclude his profits for the purposes of Case VII.

Mr. Houghton: I will give the Economic Secretary a new slant on this before he replies. Let us consider the more unsophisticated speculator who decides to have a flutter. He may decide to have a flutter and lose money. Then his wife grumbles at him, and he decides to give it up and buy a new car instead. He will have a Case VII loss. He may not indulge in speculative activities for years afterwards, but he will still have this loss on his mind.
In due course, he will probably ask for a certificate, similar to the post-war credits certificate. He will keep this by him. It will be a very pretty document and every now and then he will take it out to look at it. Then his wife will say, "When will you got your money back?" He will say, "Until I go into the speculator's business again I shall never get it back." She will say, "That is unfair. They ought to allow you to set off those losses against your salary."
I warn the Economic Secretary that this inevitable carrying forward of long held losses against income will be tiresome to him. It would be much better to cut it short and to get it over.

Mr. Glenvil Hall: May I add, in case it is thought that the cases that have been put forward are rather speculative and even fanciful, that some record will have to be taken of these losses if they go on year after year. If they go on and people pile up credits in this way they should have some acknowledgment from the Treasury that their right to set off a loss exists. It seems to me that the Government will be pressed to issue

some sort of certificate to individuals in this position so that when, in ten or fifteen years' time, they try to get credit on a loss of ten or fifteen years before the Treasury will not be able to say, "We know nothing about it. Where is your proof?"

Mr. Mitchison: Would not a medal be the best way of doing it?

Mr. Glenvil Hall: A medal would be one way, but how one can inscribe on a medal what the transaction was, I do not know. There will be pressure for something of this kind to be issued and, therefore, what my hon. Friend the Member for Sowerby (Mr. Houghton) said was not all that fanciful. There is something in it.

Mr. Barber: The principal point of the hon. Member for Sowerby (Mr. Houghton) was that the Government would in due course have pressure brought to bear to extend the loss relief so that a loss could be set off against other income. I do not think that I need go further than point out to him that this is not in the Bill and that there is no intention of doing this.
As to the argument of the hon. Member for Gloucester (Mr. Diamond), I can only say that the logical consequence of it is that there should be no loss relief at all.

Mr. Diamond: No.

Mr. Barber: That was certainly the consequence of his argument. This being so, he is obviously at variance with the hon. Member for Sowerby. The consequence is the arguments I adduced in relation to the hon. and learned Member's Amendment applying with redoubled force to the arguments of the hon. Member for Gloucester.

Mr. Mitchison: The Economic Secretary still has not answered the point about the inadvisability of equipping people with losses, with or without a medal, a certificate or other sign of their having them. I should have thought that the Treasury ought to be very careful about doing that. I suggest that it is inadvisable to extend the habit of carrying forward losses in this way. In this case it is certainly the open door to practices which, in the language of the Evening Standard, are undoubtedly


illegal but difficult to detect. That is a very good reason for being careful about it. I wish that the Economic Secretary would tell us why he disregards all that.

Mr. Barber: We shall not have to consider in any provisions in a Finance Bill those who engage in what the hon. and learned Gentleman the Member for Kettering (Mr. Mitchison) quite frankly called fraud. There are obvious occasions in any new provisions for fraudulent practices. This is not mere avoidance which the hon. and learned Gentleman is talking about. It is fraud—a criminal offence. I should not have thought that, even taking into account the possibility of fraud, for that reason alone we should not do what otherwise, certainly prima facie is fair and equitable, which is to allow these people who are taxed under Case VII also to have an opportunity of setting off their losses against their profits.

Mr. Mitchison: I do not think that the hon. Gentleman appreciated the strength of the arguments adduced in favour of the Amendment. I think, on the other hand, that what he has said deserves more careful consideration than perhaps at first sight it appeared to deserve. For these reasons I should like to reserve the possibility of reverting to the matter, but for the present I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Stevens: I beg to move, in page 11, line 48, at the end to insert:
(b) in the case of any chargeable accounting period, whether or not it is a period for which the accounts of the trade or business are made up, the gains to be included shall be those accruing during the period, and the losses to be allowed shall be determined accordingly and subsection (3) of section twenty of the Finance Act, 1937, shall not apply in relation to those gains or losses.
The reason for the Amendment is another example of the complexities and difficulties which arise from our two-tier structure of taxation of the profits of limited companies and should be a further encouragement to my right hon. and learned Friend the Chancellor to press on with the inquiries he is making into the possibility of simplifying the whole of our tax structure.
In the ordinary way, the basis for assessment of the profits of limited com-

panies for Profits Tax purposes is the same as that for Income Tax purposes, namely, the twelve-month period of account of the company. Subsection (7) deals with the Profits Tax charging of these short-term gains. While the basis of assessment for Profits Tax purposes is normally the same for Income Tax purposes, it is not always so. The Profits Tax basis will change, for example, if the accounts of the company concerned are made up for irregular periods.
That can happen in a number of different circumstances. It may be a new business. It may be an ending business. It may be that the board has decided to change the date up to which the accounts are made. For these and other reasons, the period of account of the company may be a period other than twelve months. In these circumstances, the Commissioners of Inland Revenue have power under Section 20 (2, a) of the Finance Act, 1937, to determine what the chargeable accounting period shall be. Obviously, in these circumstances the chargeable accounting period will not be the same as the period of account of the company.
As I read the subsection, there is a conflict, because the effect of the first part of the subsection is that regard is to be had to the amount of the gains less losses accruing in the period for which the account is made up, but paragraph (b) clearly states that regard shall be had to the actual gains and losses accruing during the chargeable accounting period. There is thus a clear inconsistency between, on the one hand, the accounting period and, on the other, the chargeable accounting period. The object of my Amendment is to remove that inconsistency.

Mr. Barber: My hon. Friend is quite right and I advise the Committee to accept the Amendment.

Amendment agreed to.

Mr. Stevens: I beg to move, in page 12, line 6, to leave out from "shall" to "be" in line 16 and to insert:
be the same as if no notice were in force under that section, but—
(i) where gains accrue in a chargeable accounting period of the subsidiary in excess of the losses allowable to the subsidiary under this Chapter against those gains, then in computing the profits arising in the corresponding chargeable accounting period of


the principal company from its trade or business the excess shall, for the purpose of deducting losses allowable to the principal company under this chapter and accruing in that period and for the purposes of subparagraph (ii) below".
I hope that this Amendment will be as successful and be greeted with the same brevity as was accorded to my last Amendment, which was dealt with in one of the best speeches I have heard from the Treasury Bench for a very long time.
This Amendment deals with a different point. It deals with oases where there has been a group assessment. For Profits Tax purposes a group of companies can elect to have group assessment under Section 22 of the Finance Act, 1937. A main feature of that for Profits Tax purposes is that losses of one company can be set off against the profits of another. There are three ways in which those losses within the group may occur. A subsidiary can have a loss which is deductible from the profits of a parent; a parent can have a loss which is deductible from the profits of a subsidiary; or one subsidiary may incur a loss which is deductible from the profits of another subsidiary. Paragraphs (a) and (b) of subsection (7) deal with the first two contingencies but not with the third, the setting off of the losses of one subsidiary against the profits of another.
The effect of my Amendment would also be that a small inconsistency in lines 6 to 8 on page 12 would be removed. The effect of the provision as it is at present written is that where a group assessment is in force the gains accruing to a subsidiary company will be included in the profits of both the subsidiary and the parent.
I hope that I have made my argument clear and that this Amendment will be greeted with the success and brevity accorded to my previous Amendment.

Mr. Barber: Yes.

6.45 p.m.

Mr. Mitchison: No. We should like a little more explanation than that. The Economic Secretary's speeches are becoming so short that he will not be able to Shorten them any further. Though there is much to be said against his longer speeches, there is also some-

thing to be said against his shorter speeches. We would like to know from him in detail why this and the preceding matters were omitted by the Government. What has caused the Treasury to commit so many errors of draftsmanship in one subsection?

Mr. Barber: The honest answer is an equally brief one. We made an error in both cases. Now, my hon. Friend having sought to put it right in this way, we agree with him. I thought that it would be for the convenience of the Committee if I made the point as briefly as I did.

Mr. Mitchison: Let him not do it again.

Mr. Diamond: Notwithstanding the brevity with which the Economic Secretary has dealt with the Amendment, may we be assured that he has had an opportunity of looking at the drafting? We are all familiar with Amendments being introduced by back benchers which are acceptable in principle because a back bencher sees the point in question and seeks to put it right. Such Amendments are acceptable in principle, but, without the assistance which is available only to the Government Front Bench, it is often difficult to get the drafting precisely right.
I recognise that the hon. Member for Portsmouth, Langstone (Mr. Stevens), who is a very distinguished member of an acceptable profession, has to consider the drafting of Income Tax Acts, Companies Acts and many other Acts in great detail. He is, therefore, very familiar with draftsmanship as a whole. Nevertheless, it would be very reassuring to know that the Economic Secretary had an opportunity to look at the drafting and that not only is the principle of the Amendment acceptable to him, but the drafting has been carefully considered and is so right as to every single word, comma and every other mark in it that the Economic Secretary found it possible to accept it in one word.

Mr. Stevens: Although I very readily accept political jealousy between the hon. Member for Gloucester (Mr. Diamond) and myself, I very strongly resent this professional jealousy. The fact that he has never earned ten out of ten for one of his sums is no reason why I should not earn ten out of ten.

Mr. Glenvil Hall: I have no objection whatsoever to the Economic Secretary being brief in his replies, provided that what he says tells the Committee why he has rejected or accepted an Amendment. Particularly in view of what he said in reply to the query raised by my hon. and learned Friend the Member for Kettering (Mr. Mitchison), if the Treasury has slipped up and made a mistake it should apologise to the Committee. The Economic Secretary seemed to think that it was rather funny. At any rate, he took the matter very lightly, giving the impression that this was something the Treasury had had called to its attention and that it accepted straight away the Amendment tabled by the hon. Member for Portsmouth, Langstone (Mr. Stevens).
If the hon. Member for Langstone had not noticed this, what would have happened? Would there have been a gap in this legislation to which we should have had to return next year? It is obvious that if the Treasury has made a mistake it should not be allowed to ride off in the way that the hon. Gentleman seems to think it can. The least we are entitled to is an apology from the Dispatch Box by the Economic Secretary.

Amendment agreed to.

Mr. William Clark: I beg to move, in page 12, line 34, at the end to add:
(8) For the purpose of this section any profit not exceeding one hundred pounds in any year of assessment shall be ignored.
The main reason for the tabling of this Amendment is that I believe that small savers should have every possible encouragement, and my fear is that the operation of the speculative gains tax, as at present envisaged, will act against them. The Chief Secretary to the Treasury said this afternoon that savings were necessary for our prosperity, and I would not want anything to stop small savers from carrying on with their saving.
What, for example, is the position in regard to unit trusts. Unit trusts are now used quite extensively for short-term savings over three months, six months, nine months, or even longer periods. If a man saves 10s. a week in a unit trust and continues to do so for two years, under the Bill as it stands,

any capital appreciation on his unit shares in the first eighteen months will be exempt. In the last six months, however, he may be buying unit trust shares at different values—at 7s. 2d., 7s. 3d., 7s. 4.d., and so on. At the end of the two years, who is to calculate the exact amount of capital appreciation he has enjoyed?
I am sure that, as the Committee knows, this tax is really intended to catch the large man. I do not think for a moment that it was ever envisaged that it should catch the small man as well. I know, too, that in the Bill as it stands, the tax on capital appreciation is meant to be an extension of the definition of income according to the Income Tax laws, but is that so? Under Case VII, the income or loss is not allowed to be set off against any other income. That takes it out of normal income; consequently, it should be dealt with separately and differently for the small saver.
Again, we try, through the National Savings movement—and I think that the Treasury could do a little more to assist there—to help the small saver, in that the first £15 of interest on money in the Trustee Savings banks or the Post Office is free of Income Tax. If that is right for the small saver in that case, surely it is right to do the same for him in regard to this tax. I hope that my hon. Friend the Financial Secretary will give thought to this, because I rather fancy that, apart from the disincentive it will otherwise be to small savers, if the ordinary man has to work out when and what he bought at 7s. 2d. and sold at 7s. 3d. the whole thing becomes administratively impossible. Nobody would expect the Inland Revenue to do that work. The administrative difficulties would be enormous but, more important, the operation of the tax under the Bill as it stands would be a disincentive to the small saver.

Mr. Geoffrey Hirst: I want to support the Amendment, particularly from the administrative point of view. As the Committee knows, I have an absolute horror of increasing in any way Government expenditure on that bureaucracy which I have fought since I became a Member of the House, though not very successfully. Without this


Amendment, a great deal of nonsense could go on, with lots of people fussing about over £12 or £15, which does nothing but cost more money.
As my hon. Friend has pointed out, this tax is aimed much more at the person who more or less makes an offside trade in speculative gains. We should not get embroiled in the administrative details resulting from chasing a few small people, who may not even be conscious that they have made a gain. I hope that we shall show some sense of proportion in this matter.

Mr. F. M. Bennett: As my hon. Friend the Financial Secretary may recall, I made this point a feature of my speech in the Budget debate. The effect on the small saver and the costs of administration have been dealt with, but there are one or two additional matters. The wording of the Amendment may, perhaps, have to be modified. It is always very difficult for back benchers to get the wording right, and, speaking for myself, I should be very happy were the Financial Secretary to express himself as being generally in sympathy with the object of the Amendment. Or perhaps we could employ my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) to do that work for us—or even the hon. Member for Gloucester (Mr. Diamond), if he wants to catch up with my hon. Friend—

Mr. Houghton: If the hon. Gentleman will permit me to ask it, are not the drafting resources which are available to the hon. Member for Portsmouth, Langstone (Mr. Stevens) available also to him?

Mr. Bennett: I cannot answer for that, because it did not occur to me until I realised that there was a professional feeling between my hon. Friend and the hon. Member for Gloucester.
As I was saying, the wording might have to be altered. For instance, at might be understood that we were thinking in terms of £100 profit on any one transaction in any one year. There is no such intention. It is £100 for the year, otherwise a "smart boy" could have a whole series of small transactions and so avoid the tax. I hope that my hon. Friend the Financial Secretary will not waste any time on that point.
As to administrative convenience, it is a fairly good rule—

Mr. Diamond: Before the hon. Gentleman turns to administration, and while he is still on drafting, and the distinction which rests on one side of the Chamber, where draftsmanship is available, and the other side, where draftsmanship is not available, to members of the same profession, could he tell me whether the words any profit" mean any profit after deducting the losses or before deducting the losses?

Mr. Bennett: I think that we have dealt long enough with the professional rivalry between the two sides of the Chamber. I am not in the same profession as either hon. Gentleman, so perhaps we can turn to the substance of the Amendment.
I was referring to the de minimis argument, and I think that more could be said on that than has been said by either of my hon. Friends. As the Bill stands, the Inland Revenue would not only have to spend a lot of time investigating small and, perhaps, isolated gains, but would also have to spend time checking up small losses. The result might be a very great administrative burden to deal with ludicrous annual losses of, perhaps, a few shillings. The administrative cost would be quite disproportionate to what was involved.
Apart from the small saver, I do not mind supporting the small gambler. There are large numbers of people who like small gambles on the greyhound racing, or horses, or football pools. When I made this point in the Budget debate I was told, in effect, that those people had already been taxed, because a tax is levied at source on stakes on these pursuits. That is not a valid point in this case because, except in regard to gilt-edged, Stamp Duty has been paid, so that there is also a tax at source. There is, therefore, a very fair case for allowing a man to have a small gamble without all the paraphernalia of a speculative gains tax being involved.
Quite apart from gambling, I hope that the Financial Secretary will realise that if the position remains as it is in the Bill, anyone who, most estimably, does not go in for gambling, but who buys gilt-edged fixed-interest stock


within six months of the redemption date, will bear the full burden of the speculative gains tax, when all he has done has been to obey the Financial Secretary's urging to buy fixed-interest Government stocks.
At the moment any stock that is within six months of redemption will disappear from the market, otherwise the saver will be involved in the full burden of paying a speculative gains tax for what is not a speculative gain, for he is buying Government stocks with a view to gaining known appreciation on them on redemption; I hope that, in this instance, my right hon. and learned Friend will take this into account.

7.0 p.m.

Mr. Mitchison: I hope that hon. Gentlemen opposite will not object to my saying that the Tory Party provides me with continual amusement. Yesterday hon. Members opposite were engaged in opposing and voting against a proposal that small incomes should be exempted from taxation. They have today developed a sudden solicitude for the small saver—even the small gambler—which was entirely omitted when they voted yesterday. One always welcomes conversion as long as one can be certain that it is thoroughly sincere and extends to all aspects of the matter under discussion.

Mr. F. M. Bennett: Since the hon. and learned Gentleman's remarks appear to be directed at me, may I point out that in other respects the small saver has received from this Government over a period of many years one concession after another? I was pointing out that when a new tax is introduced some concessions should be made.

Mr. Mitchison: I was referring to the amusement which the Tory Party continually provides me and I find that observation rather funny. I wonder why it does not strike the hon. Member for Torquay (Mr. F. M. Bennett) in the same way? Yesterday Tory Members were voting against the exemption from taxation of small incomes and today they are justifying the Amendment by saying how anxious they are to protect the small saver and gambler. If they cannot see the inconsistency or irrelevancy of the remarks that have just

been made I am afraid that I cannot help them to do so.
This is not merely a matter of drafting. There is a real difficulty about what is proposed and as the matter stands we are supposed to be dealing with gains. I take it that the word "profit" in the Amendment is intended to mean a single gain, although that is far from clear. Might I put this example to hon. Gentlemen opposite? Supposing one puts through a transaction in a considerable number of small parcels. One might find oneself exempted.

Mr. W. Clark: The hon. and learned Member for Kettering (Mr. Mitchison) cannot have been listening to the speech of my hon. Friend the Member for Torquay (Mr. F. M. Bennett) in which he pointed out that we agreed that the wording of the Amendment was not of great interest to us but that we were concerned with the principle behind it. My hon. Friend pointed out that we did not want it to be so worded that a man with ninety-nine profits worth £99 each could get through. It is the principle that matters.

Mr. Mitchison: I have listened to everything that has been said on the Amendment but I must consider the actual words of it or it will become extraordinarily difficult to discover what it is aiming at. I am pointing out that there is an inherent difficulty about the Amendment and I wish to develop my argument. If hon. Gentlemen opposite will study paragraph 15 (1) of the Ninth Schedule they will find that where one gets a number of transactions carried out in order to effect a single bargain one must regard each transaction as a separate one attracting a separate gain or loss. I am trying to point out that if one puts through something with the intention that apparently lies behind the Amendment, one is simply inviting people who are putting through quite a large transaction to do so in a series of small bargains. According to what I understand is meant by the remarks that have been made, and certainly by the wording of the Amendment, the result would be that none of them would attract tax.
Another objection I have is that I do not think that there is any reason for drawing a line at this particular point


in this particular case. The amount involved on £100 at the standard rate is just under £40 at the present rate of tax. This is not a negligible amount and I fail to see why this form of income—because that is what it is to be treated as under the Bill—should attract this kind of exemption.
As I say, I have in mind what hon. Gentlemen opposite did the other day when, on the total exemption of small incomes, they objected. Thus I fail to see why they have selected this case for exemption and I become doubtful about the real intention behind the Amendment. I have tried to do the best I can to extract it from the words of the Amendment but, despite that, I am told that whatever the Amendment means it does not mean what it says. This is an upsetting beginning. I do not know what hon. Gentlemen opposite think they are after and I really do not know if they know the answer themselves.

The Financial Secretary to the Treasury (Sir Edward Boyle): After some years I derive a good deal of enjoyment and entertainment from Finance Bills, but I do not think that I should entertain the Committee if I attempted to respond to the invitation of the hon. and learned Member for Kettering (Mr. Mitchison) to have yesterday's debate all over again.
My hon. Friend the Member for Nottingham, South (Mr. W. Clark), whose speech I listened to in the Budget debate, and my hon. Friend the Member for Torquay (Mr. F. M. Bennett) both gave notice to the Government of the points they intended to raise on this subject in Committee. I am not quite sure that the Amendment really performs the function that the hon. Member for Nottingham, South has in mind. This is not just a matter of drafting because I imagine that my hon. Friend's object is not really to exempt gains not exceeding £100 on individual transactions because this could lead to the exemption of fairly substantial total gains. I imagine that my hon. Friend has most in mind the idea of exempting total gains not exceeding £100 in one year.
I can assure my hon. Friend that my right hon. and learned Friend the Chan-

cellor of the Exchequer has considered this proposition most seriously. There is, however, a difficulty about it; that my hon. Friend's proposal would be inconsistent with the whole scheme of the legislation we are considering in Clauses 9 to 15. The House and the Committee may or may not approve this legislation but there cannot be any doubt about what the Chancellor has in mind. My right hon. and learned Friend is, after all, widening the concept of income. He is proposing to treat short-term gains as income. To provide for the exclusion of relatively small amounts from the charge would be inconsistent with the purpose of these Clauses.
The question of the rate of Income Tax to be charged on short-term gains will, of course, depend on the taxpayer's total income, just as it does in relation to any other item of income. This is a point which should be remembered. It is not very likely that the great majority of small savers who buy a small amount, perhaps of some gilt-edged security, will make a profit of £100.

Mr. Callaghan: They will be jolly lucky.

Sir E. Boyle: The Government's actions last year and this year have had a considerably improved effect on the gilt-edged market. I was saying that the great majority of small savers will not, in fact, be paying tax on these gains at a high rate. One should remember that if the taxpayer is liable to Surtax, small short-term gains should be brought in just as would a dividend from a small holding of shares. Taking into account the way my right hon. and learned Friend has introduced his Budget, I cannot see that there is any compelling reason to give better treatment to small savers than to others making short-term gains, any more than there is reason to think that the fact that a person's gains do not exceed £100 a year under Case VII will necessarily mean that he is a small saver, because I do not believe that that will always be true either.
My hon. Friend raised the question of the unit trusts. Here again, if they derive gains within Case VII, there does not seem any convincing reason to exempt them when other persons whose main activities are not speculative will


have to pay tax on their short-term gains. Speaking for myself I would rather keep value judgment out of this. We do not want to think too much in terms of the idea that the person who makes large speculative gains is necessarily anti-social and should be caught and someone who just makes a small gain is a small saver and therefore ought to be encouraged by the tax system. What my right hon. and learned Friend says is that we should widen the concepts of income. In this Clause we are widening the concepts of income for everybody. We are not saying for a moment that there is something wrong about speculative gains, whoever makes them. We are saying that in our view they ought to come within the tax net.
My hon. Friend raised the point of the concession made in 1956. He drew attention perfectly fairly, to the fact that we had in 1956 an exemption from Income Tax given on the first £15 of interest received by an individual on deposits in the Post Office Savings Bank or the ordinary department of a trustee savings bank. I was Economic Secretary at that time and I remember the circumstances of that Budget and Finance Bill very well. Surely the aim of that concession was that it was not simply given in order to encourage the small savers as such but was given in the context of a savings Budget, with a large Budget surplus at a time when we had in this country an excess of capital investment over savings. It was done not just to encourage saving but to encourage small savers to lend direct to the Government at the long-established interest rate of 2½ per cent. paid by the institutions in question. It was an encouragement to small savers to make a voluntary addition to the Budget surplus through lending to the Government in that way. I hope that I am not to be considered offensive if I say that the purpose of that concession has not been always understood. In so far as my hon. Friend has misunderstood it, he is in good company because in the distinguished book on saving by my right hon. Friend the Minister of Health I do not think that he quite got that point either.

Mr. Jay: The hon. Gentleman surely is not suggesting that subscriptions to the

Post Office appear as above-the-line revenue in the Budget.

Sir E. Boyle: I said that this concession was made in order to encourage a kind of voluntary addition to the Budget, in other words to lend money to the Government at the ordinary 2½ per cent. rate. The right hon. Gentleman can look up the debate at the time when these things were considered.
On the question of administration, I can absolutely promise my hon. Friend the Member for Shipley (Mr. Hirst) that when this Clause passes on to the Statute Book the Revenue will have something better to do with its available manpower, who are none too many, than to regard as a first priority chasing up small investors about these small sums. I can promise my hon. Friend that there will be no question of the Revenue behaving unnecessarily—

7.15 p.m.

Mr. W. Clark: How would the Revenue know whether it was a small loss or a small profit?

Sir E. Boyle: It is for the Revenue and not for me to say what its activities will be. We are bringing in here a considerable new aspect of our tax law. I thought that my hon. Friend the Member for Shipley rather exaggerated the extent to which the Revenue would be likely to be spending valuable manpower on pursuing what prima facie appear to be small amounts.

Mr. F. M. Bennett: The Financial Secretary said that the Revenue would exercise certain discretion where deals are extremely small, but the Revenue will not have discretion where the losses are small. The individual loss must be pursued at the wish of the taxpayer if we do not draw a line, as we suggest, for gains and losses.

Sir E. Boyle: I think that I was misunderstood. I was not saying that there is specific discretion. I was saying that the Revenue would administer the matter in the sensible way that it administers the overwhelming majority of tax cases. I cannot see that it would be sensible from the administrative point of view to say that we must take out of the charge a series of small transactions, because it would equally take out a series of substantial transactions involving large


losses on the one hand and large gains on the other, leaving £100 net. We have to realise that the £100 might be the result of a very complicated case. The Amendment is not consistent with the general scheme of legislation. While I have listened with respect to my hon. Friends, I do not consider that the precedent from the 1956 Act is as powerful as they suggest.
I came back finally to the point that the Committee may or may not like my right hon. Friend's scheme but since he has decided to widen the tax basis in this way I do not think that there is a compelling case for having the kind of exemption which my hon. Friend has in mind under the Amendment, namely of total gains in one year not exceeding £100. It is for these reasons that I cannot advise the Committee to accept the Amendment.

Amendment negatived.

Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Jay: Our discussions so far have established two things. The first is that this is not a capital gains tax. The second is that it will not raise any revenue. It is useful to have that clear at this point of the discussion. What the Government have really done is not to introduce a capital gains tax, but to redefine what type of gains are to be classed as being liable for Income Tax, Surtax and Profits Tax. The Government have done that by choosing this rather queer criterion of a time limit as the test for the Inland Revenue. It does not seem to me, for two reasons, that the Government have made out their case for setting up a limit to the period during which this tax operates.
First, there does not seem to me any valid moral distinction to be drawn between gains made within six months on securities or within three years on land and gains made over a longer period. It is remarkable that the Financial Secretary, in his last speech, said, "Let us get away from moral judgments; let us not make value judgments", when the whole construction of the tax is based by the Government on a moral judgment between gains made in six months and gains made over a longer period. Because, in our view, that moral judgment —and it certainly is a moral judgment

—is not valid, we do not consider that the time limit is justified.
Secondly, it is unjustifiable for the obvious practical reason that it makes the tax so easy to evade. No argument so far has in the least impaired the contention we have made from the beginning that the six months' time limit for the purpose of share transactions makes the tax fantastically easy to evade. Therefore, the Government have not made out the case for the limit, Which is, of course, the main cause of the extremely small amount of revenue, if any, Which the tax will yield.
In our view—I believe that hon. Members opposite really agree—it is as justifiable to tax capital gains over any period as to tax income. The other day, the Chancellor said that all taxes are odious. He will agree, I think, that some are more odious than others, or, to put it the other way, some are less odious. If one had to choose between taxing income and taxing capital gains. I should have thought that a capital gains tax would be, at least, the less odious of the two.
We are informed that Mr. Clore, who has been mentioned in our debates, has made a personal fortune of about £50 million since the end of the war, mainly, presumably, by capital transactions in land and securities. Without entering into any moral questions about how this was done, or whether it was in the public interest at this time anyway, I do not think that anyone can seriously argue that, if a person can make gains of that order, or of even a smaller order, which are, of course, receipts in the form of money, whether they be called income, gains or anything else, which he can spend and which add to his purchasing power, those gains ought to be exempt from taxation.
We have been very moderate on this side of the Committee. We have not attempted to argue that, with no time limit at all for defining taxability, the whole weight of Income Tax and Surtax should fall upon capital gains. We have proposed a tapering provision which allows to some extent for the Government's argument, in which there is, I think, some validity, that very long-term or fairly long-term capital gains probably have rather more element of investment in them.

The Deputy-Chairman (Sir Robert Grimston): I am sorry to interrupt the right hon. Gentleman, but we must not go over again all the arguments which have been adduced on the series of Amendments discussed yesterday and earlier today.

Mr. Jay: I was not seeking to do that, Sir Robert. I was merely looking at the tax and saying what some of us on this side feel about it and about the future of the tax as it now comes before us.
A question has been raised about whether it is excusable to omit pool winnings from the tax. It seems to me that, for a tax of this kind, a pool winning is a quite different type of receipt from a capital gain or capital appreciation. To have capital appreciation, one must have some capital; one must have an asset which appreciates. The whole tax is based on the assumption that there is a capital asset which is worth something at one time and something else at another time, the gain consisting in the difference between the two.
A pool winning is not of this kind at all. It is more in the nature of a prize. There is no capital asset which appreciates. Although I think that the pools should be subject to taxation, as they are by a different form of tax, I do not consider that pool winnings are a valid object for the purpose of this tax. If it were to be argued—I do not know whether anybody would argue it—that the capital asset involved is the stake put down at the beginning of the operation, I suppose that the conclusion would be that, where there was a stake and no winning, a loss was made and this would have to be set off against any possible gain. That is such an obvious absurdity that it shows the absurdity of treating pool winnings in that way.
The Government admit that we shall get very little revenue from the tax, but I do not accept the argument that one could not expect any reasonable yield of revenue from the sort of tax we were proposing or from a real capital gains tax. It has been suggested that the revenue in the United States from the capital gains tax is irregular. So it is. Nevertheless, though not enormous, it is

substantial and the average over the years is very well worth having.
We must remember also, in considering the yield, that the estimates of both the majority and of the minority of the Royal Commission which discussed the matter in such an illuminating manner were made before 1954, long before the great Stock Exchange boom which began really in 1958 and before the great boom in land values which was started by the Rent Act introduced by the present Chief Secretary of the Treasury. Those estimates were made long before the great rise in capital values which have since accrued in both Stock Exchange securities and land.
If one goes back to 1957 and takes Stock Exchange securities alone, one finds that there has been a capital appreciation of about £10,000 million over periods of not more than two or three years. Going back that distance of time from now, one finds an enormous rise of about £8,000 million or £10,000 million. If one studies the national income figures—here, I have had some instruction by correspondence from the Financial Secretary—I think that it is possible to argue that the increase which is accruing annually in the value of assets of companies, without any new money being put up, that is to say, the rise in the capital values of shares held by equity shareholders generally, is proceeding at the rate of about £1,000 million a year.
I fully admit that this, of course, is unrealised gains. So far as I know, no one is aware of what the figure of realised gains on these transaction is today, but I think that all these other figures indicate that it is probably very considerable, much larger than the minority or the majority of the Royal Commission allowed for, and that, therefore, potentially, if we had a real tax, there is a quite substantial source of revenue available to us here.
The Chief Secretary to the Treasury advanced what I thought was a quite extraordinary argument against any more serious more form of tax. He said that, over any substantial period of years, or even a moderate period of years, part of the rise in the money value of the capital assets might be due to the fall in the value of money and, therefore, he seemed to suggest, it ought not to


be taxed. This argument applies to any estate values for Estate Duty In estate values for death duties nowadays, no doubt, a good deal of the money value is due to the decline in the purchasing power of the £ during the last twenty, thirty Or forty years, but nobody suggests that, for that reason, some portion of the estate should not be subject to Estate Duty.
The same argument could be applied to Income Tax at present. We have heard today that the cost of living has risen by 6·4 points during the last twelve months, a very remarkable rise in the year of the Government's pay pause, faster than in any year for a very long time. Some people have had small rises in money incomes during the past twelve months. Most of them, if they have been anywhere near the Government's 2½ per cent., have been much less than the 5 per cent. or 6 per cent. rise in the cost of living. Surely the Chief Secretary will not argue that, because some of those rises in salaries or wages have been to offset the rise in the cost of living, they should be exempted from Income Tax. If he does not argue that, he must accept that there is no weight or substance in his argument on those grounds against a real capital gains tax.
I do not believe that the tax will be temporary. It will be temporary in this farm, but I do not believe that we shall go back to a system in which we make no attempt to tax capital gains at all. It is interesting that the Chancellor did not even introduce it as a temporary tax. We are often told how Income Tax was introduced as a temporary measure and became permanent, and how the Purchase Tax was introduced as a temporary measure and became permanent. Here we have a tax which was not even introduced as being temporary. This is fairly good evidence, I think, that, far from disappearing, the tax will grow.
My hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) spoke about taxing the tree as well as taxing the fruit, and said that there was a good case for taxing the tree. I think that there is a good case in this instance, when looking at capital assets, for the tree is growing, and we are thoroughly justified in taxing it. I believe, also, that this tax will Brow as time goes on. We

on this side of the Committee shall seek to make it a more substantial, a more valuable and a more equitable type of tax, but, as it has been introduced by the present Chancellor and the party opposite, it is little more at present than a hollow framework—designed, I suppose, to delude people into thinking that it is a real tax—from which very little revenue is to be expected, and which will have to be converted in the future into something much more substantial and much more effective.

7.30 p.m.

Mr. Humphrey Atkins: I shall not attempt to go over the arguments that we have had during the last few hours. I rise only to seek clarification from the Government on one point concerning the application and the calculation of this tax, because I do not think it is at all clear in the Bill.
I refer to the position of trust funds, and perhaps I could illustrate what I mean by referring to a simple form of trust with which many members of the Committee must be familiar—the one in which a trust fund is set up and the income is paid to one person during his or her life, the capital sum in due course being paid to another. If the trustees carry out some transaction which renders the fund liable to this new capital gains tax, what I do not understand is how this tax is calculated. I feel sure that the Committee will agree that it is manifestly unfair that the tax should be calculated by reference to the income of the life tenant of the trust, because the life tenant has no direct interest in the capital.
My right hon. Friend the Chief Secretary to the Treasury referred to the tax as being a tax on money that may be spent as income. The life tenant cannot spend the money as income, because he or she has no title to it. It might appear that the obvious answer would be to calculate the tax by reference to the income of the remainder man, but, again, the same remark applies. If it is a tax on money which may be spent as income, the remainder man does not get it, at any rate, not straight away. Therefore, I do not think it would be entirely fair to calculate it by reference to his income.
If there is more than one remainder man, and there are perhaps two


ultimate beneficiaries of the trust, how then does one calculate the tax? The Committee can imagine the situation in which there are two ultimate beneficiaries, one a child with no income and the other a grown-up, married to a rich husband or wife and paying a very high rate of Surtax. Is the tax to be calculated by some process of averaging, or how?

Mr. Diamond: On a point of order. There is an Amendment on the Notice Paper to Clause 15, page 22, line 6, at the end to insert:
(3) Where gains accruing to trustees of a settlement are assessed and charged on them under Case VII, the tax chargeable shall be treated by the trustees as a proper expense to be set against the capital of the trust estate notwithstanding any contrary direction in the instrument creating the trust.
That deals with matters closely associated with those to which the hon. Gentleman is now referring. I only want to know whether, as I understand that that Amendment is likely to be called by the Chair, there will be any restriction of the discussion that may take place on that particular Amendment.

Mr. Atkins: Further to that point of order. I have seen the Amendment in the name of the hon. Member for Gloucester (Mr. Diamond) and I have studied it. It seems to me, though I am open to correction, not to cover the points I am making. What I am addressing myself to at the moment is what kind of tax should be paid in the first place.

The Temporary Chairman (Mr. G. Thomas): The hon. Gentleman may be quite sure that this discussion will in no way affect his Amendment. The hon. Member for Merton and Morden (Mr. Atkins) is quite in order in raising this point at this stage.

Mr. Atkins: Thank you, Mr. Thomas. I will not weary the Committee with endless examples of how complicated it would be to determine this tax. In many trusts, there are beneficiaries with no established right to a share of the trust, because they may die or others may be born before the shares can be finally determined. It is extremely difficult to know how this tax can be assessed. In so far as it is meant to be a tax on profits which can be spent as income, it

is clear that no one can spend it as income, and I hope that my hon. Friend the Economic Secretary will say that, at least, it attracts no tax, but I doubt if that will be the case. It may be said that, by and large, trustees do not engage in speculations of this nature. I agree, but we can all see that this situation may arise and that it is extremely desirable that trustees should know exactly where they stand.

Mr. Anthony Crosland: I am grateful to you, Mr. Thomas, for calling me now, because I should like to take up one or two points which have been raised on the other side of the Committee during the debate on this Clause.
There has been a good deal of discussion about football pools, but it seems to me that nobody has pointed out the basic distinction between football pools and a capital gains tax, apart from the one mentioned by my right hon. Friend the Member for Battersea, North (Mr. Jay). If losses or costs are allowed to be set off against any gains, there cannot be any gains made from football pools. The pools promoters expect to make a profit every year. If the costs of betting—the same is true of horse racing or any other form of betting —are set off against the gains, there can be no net gains from football pools, taking the population as a whole, even if net losses are offset against these gross gains.
The most striking feature of the debate has been the speech of the Chief Secretary. It should be said that the general level of that speech was a disgrace by Parliamentary standards. The right hon. Gentleman trotted out some of the most trivial and inaccurate arguments, many of which have been answered before. I think that he might have made some more elaborate attempt to deal with the points raised in detail. For example, on the point he made about inflationary gains. I should not have thought that, in 1962, that would have been raised from the Government Front Bench as part of a serious speech.
The right hon. Gentleman said that any comprehensive capital gains tax such as we favour would have a very damaging effect on incentives to invest, but he did not make it at all clear in what respect this damaging effect would


operate. If there is to be a bad effect in this way, it would be far worse under this tax than under the kind of tax we are proposing. The marginal results of this tax will be much higher than under a real comprehensive capital gains tax which we on this side have always favoured, and any effect which there is likely to be will be much worse under this tax than under the alternative.
So far as yields are concerned, the Chief Secretary was extremely disingenuous. He referred vaguely, though without quoting it, to the Report of the Royal Commission on the Taxation of Profits and Income. He did not refer to the quite different conclusions of the minority Report, or to the fact that the figures in the Inland Revenue appendix to the majority Report were based on assumptions that were out of date even by the time that the majority Report was printed.
I want to take up the right hon. Gentleman's point that a comprehensive capital gains tax would yield very little revenue, even if we assume that, unlike the last few years, profits are going up only at the same rate as income, and that dividends are going up at the same rate as profits. In other words, we are making a more pessimistic assumption than the last five years warranted. If profits and dividends are going up at the rate which the Chancellor set as a gross target, namely, 4 per cent. per year of the gross national product, the yield of any capital gains tax on a comprehensive scale will be very considerable. It seems to me that this argument is completely unanswerable.
There has been discussion about the effect on the Stock Exchange. I wish that the hon. Member for Taunton (Mr. du Cann) were here, because he was quite right in saying that the market has not been very strong since Budget day, due primarily to this Clause of the Bill, but partly to the fear of a dock strike and to the fear of a Labour Government, I am happy to say, and partly to the weakness of Wall Street.
There was another point on which the hon. Member for Taunton was inaccurate. He trotted out, after the event, the fear which was widely put forward before the Budget that it would have a very serious effect on the number of

markings per day, on the volume of Stock Exchange transactions. There is no clear evidence that it has had this effect. There have been one or two days of particularly heavy marking since. This certainly appears from a consideration of what has happened on the Stock Exchange during the past month. It is impossible to say, therefore, that this fear has been realised in practice.
The main points have been gone over several times in this matter, and one comes back to the main case against the Clause and in favour of our alternative proposal. We take the view, like the minority Report of the Royal Commission, that one cannot distinguish between income in the normal sense of the term and capital gains. The only intelligent way of ascertaining income is to consider what one spends during a week or, perhaps, six months. Capital gains increase one's spending power in the same way as income. In logic, that is an irresistible case for taxing capital gains as well as conventional income.
The possession of capital confers on the lucky capital owner an advantage which cannot be measured in terms of income or capital gains. It can only be measured in terms of freedom, in terms of security, or in terms of the Crichel Down type of case in which one stands up against bureaucracy and public or private authorities. There is enormous room for manœuvre and general easement of life which cannot be measured by the income profit, nor, I would say, even by the capital gains profit.
On these two grounds, it is not worth the Government bothering about a so-called capital gains tax from which the yield will be zero, and there is an irresistible case for a proper comprehensive tax of the kind which we propose.

Mr. Graham Page: It has frequently been said in discussing Amendments to the Clause and during this debate that we are redefining the gains which were previously taxable and which the Chancellor of the Exchequer wishes to bring into charge. I, for one, cannot justify the tax freedom which that sort of gain has had in the past, and it is right, in present circumstances, to bring it into charge for tax, so long as one can do that without causing damage to the


sort of activities which one would wish the capitalist, if I may so call him, to undertake. We have in this Clause chosen a form of tax which will cause the least damage, first, to the use of capital for development and, secondly, to savings.
What disappoints me about the form of tax which appears in the Clause is this. We have not excluded disposal which is made for immediate reinvestment. This will hit, in particular, the normal, prudent trustee. Only a few months ago we passed an Act dealing with the duties of a trustee, and we imposed a number of greater duties on trustees than they had before. One of them was that they should look, from time to time, at the investments which they hold in trust and, if necessary, should change those investments.
It should be put on record that this Clause will put trustees in a very difficult position when they see that, in accordance with prudence in dealing with their investments, they ought to sell an investment at a gain and to reinvest in something else. They will have to consider whether it is right for them to increase the capital at the expense of the income beneficiary paying this tax. As I understand it, the tax will fall on the income beneficiary.
7.45 p.m.
I wish that we could have relieved trustees of these further problems that will be imposed on them and on the individual of paying this tax when disposing of savings merely to plough them back again into savings. We have not done that and, therefore, the individual and, in particular, trustees will be put in this difficult position of having to pay tax when they are merely changing their investments. In the case of trustees, it is not the same person doing the transaction who has to pay the tax. He has to think of two classes of person—his capital beneficiary and his income beneficiary—and I fear that he will be in great difficulty.

Mr. Jay: The trustee already pays Stamp Duty when he buys equity shares and, of course, he pays Income Tax on the dividends from them. Is there any-think more wrong in this tax being payable also?

Mr. Page: Yes, because, when he pays Stamp Duty, that is a capital expenditure and he is charging it against only one individual, the capital beneficiary. Now he will have to consider whether he is right in increasing the capital at the expense of the income beneficiary paying the tax.

Mr. Diamond: Apart from the issue whether the duty falls on one class of person or another, on the beneficiary or on the remainder man, will the hon. Gentleman say whether it enters into the trustee's mind, when he decides to sell for the purpose of re-investing, that one argument for selling is that the stock he is proposing to sell stands at a high price and, therefore, one of his duties is to look after the various interests as well as he can and to sell because the stock is high since he will make a profit? If the trustee sells with a view to making a profit for those in whom he stands in trust, what is the argument against the tax being payable?

Mr. Page: My point was that he will have to consider this when he carries out the duties he has been directed to carry out under a recent Statute, namely, to examine his investments from time to time. When he does that and decides that it is right to sell, take the gain and re-invest, he has to decide on which individual the liability should fall.
That is a development of the main argument which I wished to advance, that I wish we could have included in the Clause an exclusion of disposal which is purely for the purpose of ploughing back any savings. We have not done that, and, to that extent, I regret the presence of the Clause in this form in the Bill. I should have liked to encourage the man with savings to look at them every now and then, to sell if sale is warranted, and to increase his capital and invest it in savings. I cannot see anything wicked or immoral in that. If a person has capital, he should not leave his talents in the ground, so to speak, so that they do not prosper. This Clause will be a discouragement to the ordinary saver who is looking after his Investments.

Dr. Alan Thompson: We on this side certainly welcome the Clause as far as it goes, but, as we have amply said, it does not


go anywhere near far enough. The only satisfaction that we get from it is that at last the door has been opened and the Government have accepted the principle that a tax on capital is no longer unthinkable. The old arguments about it being confiscatory and the argument of my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) about the difference between the tree and the fruit, and that it is permissible to tax the one but not the other, have perished for ever. I liked my hon. Friend's analogy. I shall have to work out the implications of stripping a tree of its inflationary branches and pruning it for further production. However, my hon. Friend's analogy was a lively one and should find its way into economic text books in future.
We are a little doubtful about whether the Clause as it stands can meet the many and complex objectives which any new tax in 1962 has to meet. We know that it will be a complicated tax. Any capital gains tax must be fraught with complications. As the Greeks used to say, however, it is not the easy things, but the difficult things, which are beautiful. I am sure that this quotation will appeal to the scholarly and sensitive classical minds of the Treasury. Nevertheless, a capital gains tax can be tailored to meet important objectives. In this respect, the Clause fails.
The first and obvious objective is equality. It may be late in the evening, although I hope not, to quote Adam Smith; but as he comes from Fife, perhaps I may be permitted a quotation from his well-known canon on equality of sacrifice:
the subjects of every State ought to contribute to the support of government as nearly as possible in proportion to the revenue which they respectively enjoy under the protection of the State.
Can anybody say that this miserable Clause comes anywhere near to fulfilling that objective?
Emboldened by the attention given to that quotation, I should like to give another, from Adam Smith's canon on economy in raising tax. When I look at the elaborate paraphernalia of the Clause, the rules governing it, the elaborate details covering artificial transactions, and so on, when, by holding the investment a day longer, it is

possible to avoid the whole lot, I am reminded again of Adam Smith on economy of taxation, that
Every tax ought to be so contrived as both to take out and keep out of the pockets of the people as little as possible over and above what it brings into the public treasury of the State.
The paraphernalia of administration in this case and the miserableness of the revenue stand in sharp contrast.
Our charge is that the Clause makes little contribution—one might almost say no contribution—to equity. The old idea of equality of sacrifice as a kind of philosophical principle has given way to the idea of equality of sacrifice as a psychological necessity. Everybody in the community must be convinced that they are all bearing equal burdens. What our ancestors regarded as natural law, we think of as psychological. Even as a psychological gambit, however, the Clause fails. It will have no impact on trade unions or anybody else about equality of sacrifice. It leaves wide openings for avoidance. It will be expensive and cumbersome proportionately to the amount of tax collected. From that point of view, the Clause is a bad one.
Another objective of taxation which, with our much more sophisticated ideas on public finance nowadays, we must consider is taxes for counter-cyclical purposes, using our tax system to offset booms, depressions and movements in the economy. This is an important point to which thought should have been given in preparing the Clause.
It is true that as a counter-cyclical move, a capital gains tax is rather long term. It does not have the immediate effect of, say, indirect taxes on consumption, which can be put into effect immediately by means of regulators which we have discussed at other times. The delays in collection blur its impact in this respect as a counter-cyclical weapon. Nevertheless, it is, or could be, useful if more thought had been given in the Clause to using a capital gains tax in a counter-cyclical way. Properly designed, it could have been a useful offset to long-term inflationary tendencies.
To develop the principle of using the Clause for what might be called compensatory finance, I think that both sides of the Committee are agreed—now that knowledge of Keynesian economics is


the prerogative of both sides although not always properly followed through—that automatic fiscal adjustments are, perhaps, the best way of dealing with cyclical movements. These automatic fiscal adjustments can be brought out by a sensible taxation policy.
To make the obvious point, during a period of inflation and rising money incomes, the yield of taxes increases even though tax schedules remain constant. It is an automatic stabiliser in this respect. On the expenditure side, unemployment and social benefits tend to expand in a depression, but they contract in periods of rising income and employment. Therefore, these automatic correctives of a proper flexible taxation system have significant economic as well as political advantages over other kinds of controls.
We do not rule other kinds of controls out of the question, but other kinds of discretionary controls which, nobody denies, are more administratively cumbersome lend themselves to difficulties and delay. We try the discretionary controls when our automatic fiscal working has broken down. In the Clause, however, capital gains has not been brought in to play its part in what might be called the compensatory finance of dealing with trade movements.
To quote from the Review of Economic Studies, of February, 1962, to which I direct the attention of Ministers, Mr. P. H. Pearce, a Canadian economist now working with O.E.C.D., states that
The inclusion of capital gains in taxable income would prevent a most volatile part of total income from escaping tax and hence would increase the responsiveness of tax yields to income changes.
Thereby, he goes on to argue, it would act as a counter-inflationary means in times of rising prices and vice versa in times of falling prices.
What we might say, therefore, is that if we had had a proper capital gains tax, had the Clause gone far enough, we could have broadened the base of our system and we could have built it into an automatic compensatory system of finance. This is what anybody who wants to tidy up our ridiculously obsolete tax system is always anxious to do. It can also be argued that the less discriminatory the capital gains tax, the less the likelihood that it twists capital sup-

plies into the wrong channels. The more comprehensive it is, the fairer it is.
I sometimes find myself in agreement with what is said on the benches opposite about Purchase Tax. The analogy is the same. Two extreme variations in Purchase Tax distort and misallocate resources. A flat, wider tax is better. For the same reason, by bringing in everybody a wide capital gains tax would discriminate against no particular form of enterprise. The more comprehensive the capital gains tax, the less one can argue from the viewpoint of the individual that he is being victimised or the less one can argue from the point of view of the country as a whole that resources are being in some way misallocated. For these reasons, we believe that the capital gains tax as proposed in the Clause is inadequate.
A capital gains tax, too, is a good incentive to avoid inflation, quite apart from its compensatory factors. The most effective means of damping down the rate of capital gains is to control inflation. The question of capital gains assumes a completely different magnitude in, say, a period of stable prices, on the one hand, or a period of prices rising, say, at 5 per cent., on the other.
Perhaps I may be allowed to sum up with a quotation from the late Lord Dalton, who said that public finance was one of those subjects which lie on the borderline between economics and politics. He said that studies in public finance raise the conflict between the analytical and the practical man and that excess of abstraction in this sphere is unreal and an excess of conventional rule of thumb is especially half-witted.
8.0 p.m.
What we have to do in the whole of public finance is to satisfy the ordinary person's sense of justice. This is the plain man's rule of economics. It is very real, and has been conceded on the benches opposite. Certain kinds of money have been escaping taxation, whereas others have been paying tax. We must satisfy the plain man's sense of justice and, at the same time, fit the tax into what nowadays is a complex and difficult system of raising and spending money.
On the lines that I have suggested, it is open to argument whether one uses


the money raised from the capital gains tax for special purposes, for compensatory fiscal purposes in times of inflation, for Income Tax relief, for the Health Service, or whether, as the late Lord Dalton once suggested in his original proposals for a capital levy, one uses it to write off the heavy compensation debt of the nationalised industries and so gives the public boards a freedom and flexibility of manoeuvre with regard to prices and other policies which they do not at the moment enjoy, and also raise morale in the public sector.
Whatever we use the fruits of the tax for, the Opposition would argue that Clause 9, as it stands, is a rather miserable, pettifogging effort conceived without enthusiasm and, we suspect, intended from the outset to fail—to fail from the point of view of its objective of equality, and to fail from the point of view of bringing it into harness to serve any real purpose, which any tax should, in solving the problems of our economy.

Mr. Barber: The Committee will remember that when the Bill was debated on Second Reading my right hon. and learned Friend the Attorney-General, in winding up, dealt at some length with the position of the varying types of insurance companies. He concluded by assuring the House:
that between now and the Committee stage we shall give very careful consideration to everything said on this topic."—[OFFICIAL REPORT, 3rd May, 1962; Vol. 658, c. 1345.]
Therefore, I hope that the Committee will bear with me if for a brief moment before I try to deal with some of the points which have been raised in the debate on the Question, "That the Clause, as amended, stand part of the Bill", I touch on the question of mutual insurance companies.
For the reasons which were given by my right hon. and learned Friend on Second Reading, we do not propose any change in the position of mutual non-life companies from that which results under the present provisions of the Bill. If such companies, which are not now charged to Income Tax on their profits, should make short-term gains, they will be liable on them. But as regards mutual life companies, we have reached the conclusion that the case for a relieving provision is well founded. These

companies are not charged to tax on their profits as such, but in general they pay tax on the same basis as non-mutual life companies; namely, on their investment income, subject to due allowance for management expenses. This gives a bigger liability than if they were charged on profits.
We are clear that it would be wrong to subject the mutual life companies to a charge under Case VII which would not fall on ordinary life companies, and my right hon. and learned Friend the Chancellor of the Exchequer intends to introduce an Amendment on Report to exclude mutual life companies from the change to tax under Case VII.
We have had a long debate—

Mr. Jay: Is the hon. Gentleman not going to explain to us the reasons for this decision? I gather that he is now saying that the mutual non-life companies are to be subjected to the tax. How about the non-mutual non-life companies? Are they subjected to the tax now? Is the hon. Gentleman making any distinction there? Can he explain exactly why he has drawn the distinction in this way?

Mr. Barber: I will go over the whole ground again if the right hon. Member for Battersea, North (Mr. Jay) wants me to. I will try to explain it briefly, but I hope he will bear in mind that on Second Reading my right hon. and learned Friend went very carefully and in full detail into the distinctions between the two types of companies. However, I will go into it in detail if he would like me to. Briefly, in the case of life insurance companies both ordinary companies, in general, and mutual life companies pay tax on their investment income only and not on Case I. In fact, in law the ordinary life insurance company is liable to tax under Case I. Because of this, the ordinary company —that is, the non-mutual company—will not be liable to tax under Case VII. The right hon. Gentleman will remember that companies which are liable already under Case I come outside the scope of this charge.
This means that the ordinary Company—this is the ordinary life insurance company—of the non-mutual type will normally pay tax on its investment income only. The mutual life company will also pay tax on its investment income only, but, as the Bill is at present


drawn, it will in addition pay tax under Case VII because it is not liable under Case I. This would obviously be inequitable, I think, if one compares the position of the ordinary company with the mutual company—I am concerned solely with life insurance companies—because it would in effect impose an additional burden on the mutual life companies. Therefore, we thought it right to take the action we have suggested.

Mr. Jay: Does it mean that ordinary companies and mutual companies will now be in exactly the same position; that is to say, that the life companies in every case will be exempt whereas non-life companies will not?

Mr. Barber: It is true that the life companies will be in the same position. I have put the matter very briefly. It is difficult to explain briefly, but I hope that my right hon. and learned Friend the Attorney-General will agree that I have put it correctly. I emphasise that it is lot easy to explain in a few moments.
We have had a series of debates on the Clause, first, on the Amendment, and then a final debate on the Question, "That the Clause, as amended, stand part of the Bill", and these debates have gone on for a considerable time. The right hon. Member for Battersea, North, who spoke first for the Opposition in this last debate, made two main points. First of all, he said that, in his view, there was no particular validity in the periods of six months and three years selected by my right hon. and learned Friend. Surely the point that he made there raises once again the basic distinction between the view of the Chancellor and the right hon. Member for Battersea, North? We have been over this ground not only in the four-day debate that we had on the Budget and also on the Second Reading of the Bill but again this afternoon in connection with the Opposition Amendment to which my right hon. Friend the Chief Secretary replied.
I hope that the Committee will acquit me of any discourtesy if I do not go over the same ground again. My right hon. and learned Friend has already explained why he is not in favour of the kind of scheme which is advocated by

the Labour Party, and the Chief Secretary repeated many of the arguments again this afternoon. I thought that the hon. Member for Grimsby (Mr. Crosland) was a little unkind. After all, my right hon. Friend the Chief Secretary was replying to many points which had been put previously in our debate.
Briefly, I think one can draw this distinction. The Opposition's scheme is directed to taxing the appreciation on genuine investment—it is a point of view, and it is the one which the Opposition hold—whereas my right hon. and learned Frend's scheme is directed more to the taxing of the fruits of speculation.
The right hon. Member for Battersea, North went on to say that the whole basis of my right hon. and learned Friend's proposals involves a moral judgment. Here again, I do not wish to weary the Committee by going over the whole ground again. This is the same point as the right hon. Gentleman made in the debate on the Budget. Perhaps I might just remind the right hon. Gentleman that, in columns 1535 and 1536 of HANSARD of 12th April, I dealt with this point at some length. I again, with respect, draw his attention to what I said.
My hon. Friend the Member for Crosby (Mr. Graham Page) referred to the position of trustees. As a solicitor he has had much more experience than I of the practical workings of these matters, but from the discussions I have had about this Bill I doubt very much whether the difficulties of trustees will be as serious as he suggests. In any event, I am sure he will agree that it would be out of the question to exempt trusts from any form of tax on capital gains. This being so, even if the difficulties which he foresees were as serious as he suggests, I cannot see how, as a practical matter, we could, in the context of a tax of this kind, do anything to meet his point.
The hon. Member for Dunfermline Burghs (Dr. A. Thompson) criticised what he called the "elaborate provisions and paraphernalia" of the Bill. I must confess that I have a great deal of sympathy with that point of view, and if it had been possible to produce a simpler and shorter Bill, that would have been done. But, of course, we are extending the scope of Income Tax into an entirely


new field, and in these circumstances it is inevitable that the legislation should be rather complex, not only to prevent doubt by trying to cover all these various points but by trying to cover the great variety of differing circumstances where the new tax is intended to operate.
I hope that the Committee will forgive me if I do not deal with the point about automatic fiscal adjustments to deal with cyclical movements. That went a little wider than I had anticipated.

Mr. Houghton: Has the Chancellor made any rough estimate as to whether the cost of the administration of the tax will be greater than the yield?

Mr. Barber: I am not sure whether that is a trick question or not, but the hon. Gentleman will recall that repeatedly during the Budget debate and also, I think on Second Reading, Government spokesmen said that it is not possible in the case of a new tax of this kind to give any estimate of the yield. This being so, it is impassible to compare the yield with the cost of administration.

Mr. Houghton: So this is a speculation in itself.

Mr. Barber: I come finally to the point raised by my hon. Friend the Member for Merton and Morden (Mr. Atkins). He asked about the case of a trust where the income is paid to one person during his or her life but the capital fund is ultimately distributed to another person. He said that trustees might find that funds under their control attracted the new tax under Case VII, and he asked what the position was.
As he knows, for tax purposes, the gain will obviously be treated as income. Whether or not it will be treated on a par with income for the purposes of the trust will depend on the terms of the trust instrument. By virtue of Clause 11 (6), trustees of a settlement are to be treated for Case VII purposes as a single and continuing body of persons. The consequence of this and of the general law in this matter is that in the normal case—by which I mean a case where the special anti-avoidance provisions do not operate—in respect of a gain chargeable under Case VII, there will be no liability to Surtax, and Income

Tax will be charged at the standard rate.
I have tried to cover as briefly as possible the various points raised, and I hope that the Committee will now come to a conclusion.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 10.—(CHARGEABLE ASSETS.)

8.15 p.m.

Sir John Barlow: I beg to move, in page 12, line 41, at end to insert:
Provided that no property of any description shall be chargeable assets if it is used or to be used in its trade by a body of persons carrying on a trade which consists of the working of mineral deposits of a wasting nature outside the United Kingdom.

The Temporary Chairman: I suggest that we should also discuss at the same time the proposed Amendment to Clause 13 in the name of the hon. Gentleman, in page 18, line 45, at end insert:
Provided that this subsection shall not apply to the shares held by a United Kingdom public company in a company the trade of which consists of the working of mineral deposits of a wasting nature outside the United Kingdom.

Sir J. Barlow: That would be convenient, Mr. Thomas.
Clause 10 deals with chargeable assets. It seems to me that the Chancellor, quite rightly, has cast his net very widely, but presumably he will recognise the justice and logic of the suggestion that he has cast it a little too widely.
The Clause as drafted strikes at the assets of an overseas mining company merely because they have to do with land. There are two main reasons why this type of asset should not be included. The first is that many of these companies are overseas mining companies within the definition of overseas trade corporation, and a very Gilbertian situation arises inasmuch as such companies established on an O.T.C. basis will be wholly exempt on trading income but will attract taxation on any disposals of capital assets consisting of interests in land.
It seems quite wrong and inconsistent to tax a company on its capital gains


while exempting it on its trading income. I hope that my right hon. and learned Friend will consider that.
Secondly, the case may arise where a mining company, managed in this country but operating overseas, may want to change its capital. It may want to sell parts of its assets or, in the course of normal development and trade, it may wish to do various things with its shares. In some cases, it might easily happen that, if it tries to develop in the normal way, within three years it might attract this tax, and I do not think for a moment that that was in the mind of my right hon. and learned Friend. I hope that he will at least look into this even if he cannot agree completely to the Amendment as drafted.
My second Amendment is to Clause 13, which strikes at profits made on sales of shares in land-owning companies, particularly those which are tightly controlled. It is unfortunate that the Clause strikes at other people who are outside its mischief. It is very wide indeed. An overseas mining company which uses land only for extracting minerals can fall within the definition of a land-owning company if 20 per cent. of its assets are held as interest in land. I do not think that the Chancellor meant to include companies such as that. Presumably, it is not intended that the sale by a non-dealing United Kingdom company of shares in an overseas mining company should be caught by the speculative gains tax without time limit.
I hope that the Attorney-General will look at this matter. It is a simple point in that it deals with the same kind of assets which I mentioned on the other Amendment and which I do not think the Chancellor meant to bring within his orbit. I hope that the Attorney-General will consider my words and change the Clause if he agrees with me.

The Attorney-General (Sir Reginald Manningham-Buller): I have listened with care to what my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow) has said in support of these two Amendments, but we are not convinced that it would be right to concede the proposed exemption.
My hon. Friend made it clear that the first of his Amendments operated only in respect of land and interests

in land, although the Amendment in terms refers to property of any description. In fact, quite apart from this Amendment, buildings occupied and used for the purposes of a mining trade with ancillary land are exempt under subsection (4), and plant and machinery are either tangible movable property and exempt unless they come within Clause 10 (1, c) or exempt as permanent or semi-permanent structures under Clause 10 (4, a), so the Amendment in fact would appear to affect only the position of interests in mining land.
We are not satisfied that any case is made out for exempting such interest from being chargeable assets. If a company sells freehold or leasehold interests, if it owns large interests in land and sells those interests or part of them within three years of acquisition at a profit, there seems to be no logical reason why that profit should be excluded from the Case VII charge any more than a similar profit on the sale or leasing of any other kind of land wherever it may be situate. I am sorry to disappoint my hon. Friend by saying that, but when one examines the structure of this tax, it is difficult if not impossible to make out a logical case for this exemption.
I now turn to the second Amendment in which my hon. Friend is seeking exemption in relation to shares held by a United Kingdom public company not being a company the trade of which consists of the working of mineral deposits of a wasting nature outside the United Kingdom. I do not want to say too much at this stage about the content of Clause 13, but to deal with this point I must remind the Committee that the sale of shares dealt with in Clause 13 is to meet the case where instead of disposing of the land within three years, shares in the company are sold instead. If a mining company or any other company sells the land within three years, it would be liable to tax. The sole effect of that Clause is to avoid the escaping of that liability by the sale of shares instead.
If the United Kingdom public company controls a company which owns ordinary land abroad to such an extent that it is technically a land-owning company, it would be liable on any gain arising from the sale of share in that


company, however long the shares had been held, but the charge will not exceed the due proportion of any gain which would have arisen to the land-owning company if, at the time the shares were sold, it had sold at market value any land which it then owned for not more than three years.
I am sorry to disagree with my hon. Friend, but I cannot see any ground for enabling a company of the sort dealt with in his Amendment to be exempt from liability on selling shares instead of selling the land itself, and I must therefore ask the Committee to reject the Amendment.

Sir J. Barlow: In view of the Attorney-General's explanation, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Diamond: I beg to move, in page 13, line 33, to leave out subsection (4).

The Temporary Chairman: It may also be convenient to discuss with this Amendment the Amendments in page 14, line 7, to leave out "or (4)", and in page 14, line 13, to leave out "or (4)".

Mr. Diamond: The second and third Amendments are consequential and I need not comment on them.
Clause 10 deals with chargeable assets and describes them to begin with as being all forms of property. But when we reach subsection (4), which we seek to omit, there is excepted from all forms of property one well-known kind of property, namely, a building or part of a building occupied and used for the purpose of a trade, profession or vocation. That is the generality of the situation.
I quite understand that there are exceptions. There are the exceptions described in subsection (6), about which we all agree. There is the exception described in this very subsection referring to dealing companies. I need not go into that exception, because we are all agreed about it. What we are not agreed about is the justification of the argument which is incorporated in subsection (4), namely, that a trade which uses a building should not pay tax on the capital profit emerging from the sale of that building if it sells it within the period and in the

circumstances in which any other person selling land in this way would pay tax.
The whole purpose of this short-term capital gains tax as put forward by the Government is that if property is disposed of by any person within a short period, that is, six months with a certain kind of property and three years with others, and if it is in the mind of that person to make a profit, tax shall be payable.
8.30 p.m.
What does a trade, profession or vocation do? What motivates the trader who is carrying on his trade? The simple answer is his desire to make a profit. That is what it is all about. He desires to make a profit in the normal way by carrying on his trade. Normally, he does not deal in property, but if, incidentally, he has a property to dispose of, he will try to make a profit when disposing of it. If a business wants to move, or has to move, the considerations which will affect the time of moving will be the market value of the property, whether it is likely to go up or to go down, what development there is to be in the neighbourhood, and so on—all the normal considerations would apply to anybody else who was seeking to make a profit by dealing in property alone.
This does not refer to a property dealer, but to a business which incidentally has property. What motivates the trader is the desire to make a profit, and where the whole of the capital gains tax is based on the principle that if someone makes a capital profit of this kind he pays tax on it, I do not see why the property to which I have referred should be excluded.
I hope that I have not misunderstood the position. The case can be made simply and shortly, and I trust that I have made it, but I am bound to go on to the question of plant, and here I may have misunderstood the position because it is nothing, like as simple as the other case. If I understand it aright, fixed plant comes under the heading of property and is not excluded by the reference to tangible moveable property. Fixed plant would be property which would be subject to the capital gains tax. If I am wrong, I am sure that the Attorney-General will stop me immediately, because there is no point in


developing an argument which is based on a misreading of the Clause.
There is a fine distinction between what is fixed plant which would be property subject to this charge, and tangible movable property which would not be subject to this charge. So far as I am aware, the benches on which we are sitting may be one of two things. If they rest on the Chamber floor they are tangible movable property, but if they are firmly fixed to the concrete floor of the Chamber they are fixed property, and would be transferred only on the transfer of the House of Commons itself. That illustrates the fine distinction between the two types of property, and is an argument against differentiation because of the complications that will arise.
Suppose, however, that we have to accept this complication and this fine line of division, and that we have to accept, also, that if these benches were in a building used for trading purposes they would be tangible movable property in certain cases and would be excluded, but if they were a part of the building itself they would be excluded because of this subsection. I do not follow that. If they were part of the property they would, presumably, be excluded under the terms of subsection (4), but if they were not part of the premises they would not be so excluded, so we would get into the extremely difficult situation that plant fixed to the property would, as ordinary property, pay this tax, but if included in the definition of building or part of a building would not.
I therefore say that we are in an extremely difficult position, and more particularly I say that we can remove these complications and restore sanity to the logic of the argument by saying that any property on which there is a capital profit, the capital profit having been obtained by a person who is carrying on a business with a view to making profit, never mind whether it is land or not, should pay capital gains tax in the ordinary way. That is why I believe that this subsection should be removed.

Mr. Millan: I wish to support the case put by my hon. Friend the Member for Gloucester (Mr. Diamond). There was a certain amount of discussion

earlier today about the increasingly artificial distinction drawn between income and capital. There may be a good deal of room for argument about taxation legislation, but a distinction like this is extremely artificial from the point of view of taxable capacity.
A business operates to make money. If it makes a profit in this way that profit ought to be taxable. There is a considerable case for making that profit taxable under Case I under the ordinary profits of a trade or vocation. For other Income Tax purposes we have to draw these distinctions and have these categories of capital assets. It is perhaps going rather farther than this Amendment to make the kind of suggestion I have made, that in so far as profit is made by a taxable asset it should be taxable, but probably in every circumstance that ought to be done.
This Amendment does not go nearly as far as that. It limits the taxable nature of the receipt to cases where the building has been disposed of within three years from purchase. If a building is purchased for some perfectly legitimate purpose of the business, even in the full expectation that the building will be maintained for the purpose of the business and remain a capital asset, and some particular circumstance arises during the period of three years from which the purchase is made and the building has to be sold, it seems that there is a strong case in this restricted category for any profits on the transaction to be taxable.
The circumstances which can be used as an argument for making this a nontaxable receipt do not apply. Whatever may have been the intention of the purchaser in the first place, even if it were to keep the building permanently as part of the taxable assets of the business, that has not happened. For some presumably good reason the building has been disposed of. Therefore, one can say that the original intention has been frustrated. In those circumstances the argument that it then becomes simply a capital receipt and a nontaxable receipt seems to fall completely to the ground. This is a very good case where the distinction between capital and income which the Government wish


to lay down in other cases ought to be obliterated and this Amendment should be accepted.
I do not want to go into detail about plant, but I agree with my hon. Friend that the situation seems extremely complicated. I imagine that what the Government are trying to do, although I cannot see them doing it by this Clause, is to make fixed plant in exactly the same position as the building itself. Subsection (4) does not mention fixed plant. Perhaps the Attorney-General can explain if it is covered in the definition of a building. One would have thought that the Government would have covered fixed plant by subsection (4). If it is included that can only be by implication. That seems unsatisfactory, but perhaps we ought to wait to hear what the Attorney-General says.
The same considerations and circumstances ought to apply to movable plant as they would if the Amendment were accepted. If for any reason movable plant is sold within three years—whatever may have been the original intention—and profit is made, the profit ought to be taxable. There would be very few profits from the sale of plant within three years after purchase because normally plant deterorates quite rapidly, even if it is not used at all. In principle the same sort of consideration ought to apply. Perhaps it is not so important, but I hope that we shall hear something from the Attorney-General about it.
What seems to be true, according to subsection (2, c), is that if movable capital assets are disposed of without their having been employed in the business, any profit on them is chargeable. One finds a certain amount of difficulty in envisaging many circumstances in which this would happen. One sees no reason why the Government should put in this provision and also include subsection (4). I should have thought that there was a basic contradiction in principle between the proviso in subsection (2, c) and the whole of subsection (4). I hope that, first, the Attorney-General will make clear what the Government's intentions are and whether this Clause carries out those intentions faithfully, and, secondly, that he will say something about the principle in subsection (4). Whatever we

may think about the distinction between capital and income in other contexts, the principle in subsection (4) is quite wrong and the subsection ought to be eliminated.

The Attorney-General: The hon. Member for Gloucester (Mr. Diamond) put his points, if I may say so, extremely clearly, and I hope that I have appreciated them fully. If it were the case that we were setting out to tax all capital gains, it would, indeed, be anomalous to make the exemption provided by subsection (4). The approach of the party opposite is that this should be a tax on all capital gains. On this Amendment, in the present situation, I think that one must proceed on the basis that this is not a capital gains tax of that kind, but a tax on speculative short-term gains. I put this point of view on that basis to the hon. Gentleman.
First, it is inherently improbable that buildings with ancillary land, for instance, a factory yard, used and occupied for the purpose of a trade carried on by the person who has disposed of them, would have been acquired by him as a speculation. The probability is that they were acquired because he intended to carry on the business. Quite apart from that consideration, there are considerable practical difficulties to which the hon. Gentleman, in the latter part of his speech, drew attention.
If this exemption is not made and if the business is sold as a going concern and a lump sum is paid for the purchase, then the vendor, if this exemption were not there, might be liable in respect of different items in the totality of the business on quite arbitrary lines, and it would be necessary to apportion the purchase price between the different items.
For instance, if one of the buildings that he was selling in the totality was a building bought within the period of three years it would be liable to tax on so much of the total profit attributable to that building. Then one would have to bear in mind that buildings which had been acquired before the three years would also be exempt from tax. Then there would be the case that for other assets, if there was no exemption for them, the period would be six months.
Having considered the practical difficulties and in the light of the inherent improbability that a business would be bought for a speculation by a person who had occupied and used it for the purposes of trade, we have come to the conclusion that in the circumstances it is right in the context of this tax to make this exemption.
8.45 p.m.
We realised that if we stopped just with this exemption it left a possibility that some unscrupulous persons would use it for the purpose of tax evasion. The purpose of subsection (6) is to stop that happening. I need not, on this Amendment, refer to that in detail. The Committee will see that if it is challenged a person would have to establish that the acquisition of the property was made for the purpose stated in subsection (4)
and not wholly or partly for the purpose of realising a gain from the disposal of it".
We have blocked that escape route, I hope satisfactorily.
It comes down to the question whether a speculative gains tax should be applied to the sale of a business which has been carried on by the vendor and which he himself occupies and uses for the purposes of the trade, profession or vocation. For the reasons I have given, we think that that would be wrong in the light of the practical difficulties and the inherent improbability that such an acquisition would have been made for the purpose of a speculation.
The hon. Member for Glasgow, Craigton (Mr. Millan) raised a point about plant. I think that if it is fixed plant it comes within subsection (4, a) as a
permanent or semi-permanent structure".
Tangible movable property is excluded already. But I will certainly consider whether it is necessary to make special provision to deal with the point raised by the hon. Member about fixed plant.

Mr. Diamond: Can the Attorney-General tell me simply what the position is with regard to fixed plant? Is a profit made from the sale of fixed plant by a person carrying on the business subject to a capital gains tax?

The Attorney-General: The intention is that if the business is sold as a whole by a person who occupies the building

or part of the building for the purposes of a trade, profession or vocation carried on by him, he should be exempt. But I will certainly look into the point.

Mr. Houghton: I usually find the learned Attorney-General very persuasive in argument. I once agreed with him when he stood alone. I am always very impressed with the arguments he adduces, but I must say that on this difficult question I was not convinced by what he said just now. It seems to me that one of the objects of the Government in drafting this new tax was to exclude as far as possible any consideration of motive. The test applied has been the length of time between the acquisition and disposal of the asset. That was an understandable purpose; to avoid a lot of argument between the taxpayer and the Inland Revenue as to why the taxpayer did what he did: was it with a view to making a profit, or was there some other purpose in mind?
What the Attorney-General said a moment ago about the problem of apportioning the value of a particular asset on the value of a business as a going concern would certainly be the case if there was any challenge by the Inland Revenue of the motive that prompted the person to buy the business and then to dispose of it.
It is conceivable that a person with an eye to making a capital gain would buy a corner shop as a going concern, not being very interested in the business of the shop but being very interested in the property. After running the business for a short time, he would be able to dispose of it as a going concern to someone who might also have in mind the making of a capital gain on the disposal of the property later on.
If that were believed to be in the mind of the person who acquired the property, the Inland Revenue could challenge him, and could ask for an apportionment to be made to the value of the property, as distinct from the value of the stock in trade and any goodwill there might be. In certain circumstances, that difficulty would have to be dealt with.
A small business, or a professional man—a solicitor, or anyone buying a property for his own occupation for a while—would be more likely to have a capital gain in mind than would a larger business, where there would be


the site, or the cost of moving, and other considerations in the running of the business—the erection of plant, or, in some cases, a particular address. In those cases, it is unlikely that a transaction with a view to capital gain would take place yet, in such circumstances, capital gains can be substantial.
We clearly understand that we are dealing only with a gain that would be excluded from the assessment on the profits of the business, but we feel that to have a capital gain made in those circumstances, which is charged neither as profits of the business nor as a capital gain, leaves a considerable amount of capital gain outside the scope of this tax. The learned Attorney-General says, "Of course, this is really a speculative gains tax, and we must not try to turn it into anything else", but we think that it is much better to include this within the scope of the tax and so get rid of the tiresome problem of motive, which would otherwise arise.
There are other reservations in subsection (6) regarding the acquisition of a site with a view to the erection of a building or a structure, and its disposal, so some safeguards have had to be introduced. We are talking, of course, of a capital gain realised within the stipulated period. No tax will arise on any capital gain in a business which stays put for three years, and, where there was a strong possibility of a business being moved and a capital gain being swept up as a process outside that period, there would be a strong temptation to do that, as that capital gain would be tax free.
In these circumstances, I cannot see why the exemption in subsection (4) should remain. We shall require a much more convincing argument than we have so far heard from the Attorney-General before we shall allow the matter to pass.

Mr. Millan: It is obvious from the remarks of the Attorney-General on the question of fixed plant that the Government have not thoroughly thought out this provision. The words
any permanent or semi-permanent structure in the nature of a building
are not sufficiently wide to include fixed plant. Such plant in the sense of machinery is normally defined as plant that is bolted or screwed to the floor,

and I appreciate that machinery bolted to the floor is not as permanent a structure as something in the nature of a building.
The Attorney-General was unable to say sufficient about movable plant. This shows that the Government have not given sufficient consideration to this question either. My hon. Friend the Member for Sowerby (Mr. Houghton) put this question of purpose lucidly because we are really importing into subsection (6) a substantial question of motive in a way that is not applied anywhere else.
The whole point of having a time limit —of six months for securities and three years for land—is that, starting from the basic assumption of the Government, it does not involve one in considering people's motives. This disposal within a certain time is taken to settle the matter, and it is unfortunate that in subsection (6) we should have imported the question of motive. As I say, this does not appear elsewhere. The Attorney-General mentioned exclusively the technical difficulties that would arise on the sale of the business as a whole. Is he aware that we are not discussing that but are talking about the sale of a particular building? I should have thought that the number of cases in which a particular building is sold within three years of it being purchased will be very much higher than the number of cases in which there will be the sale of a complete business which happens to include a building or buildings purchased in the three years before the date of the sale.
It is not sufficient to answer the point by talking, as the Attorney-General did, exclusively about the sale of a business. I can best illustrate this by putting two concrete examples to the Attorney-General and perhaps he will be able to tell us what provision the Bill makes for them. Supposing a company which has a chain of garages throughout the country decides to buy a site for the construction of a garage. Supposing that one of two things happens—that it is subsequently decided, within the period of three years of purchase, not to proceed with the construction of the garage for some perfectly legitimate reason, even though the land was purchased in the first place for the purpose of its construction.
If the company can prove under the Bill that there was a legitimate motive, what will happen if the company makes a profit on the sale of the site, as can happen with the soaring prices of property? Will that property be taxable under the subsection? This is a case in which a company has not used the site for the purposes of its business, though it happened to buy the site in the first place legitimately for those purposes.
In the second case, suppose that it constructed a garage or was a company which purchased a showroom and sold it within the three years without having used it for the purposes of the business or having used it only far a brief period. Would it be taxable in those circumstances? There seems to be no reason why it should not be taxable, but perhaps the Attorney-General could answer these specific points and not talk in general terms of the sale of the business as a whole. I should have thought that these were the kinds of cases which often happen in ordinary commercial transactions. What would happen under subsection (4) to those two cases?

9.0 p.m.

Mr. Diamond: I hope that we shall not allow the Amendment to pass without making the strongest possible representations, and I hope that this is a matter on which we shall express our views in very clear terms in the Division Lobbies. The Attorney-General was very courteous. He said that he understood my point. If I may return the courtesy, I understand his point of view perfectly. He has an extremely weak argument and is doing his best to defend it. He produced two arguments which he was not even entitled to use.
First, the right hon. and learned Gentleman used the argument of the complexity of apportioning the purchased price. If he was talking about the apportioning as between the premises and other assets in the business, he knows that that apportionment has to take place already, because one cannot deal with the matter otherwise and one has to deal with Stamp Duty in any

case. If he was talking about apportioning the price of the building alone, as between different parts of the building bought at different times, partly within and partly without the three-year period, there is no difference between that and the problem which arises in any case when there is a capital gain on land when one part has been bought within and the other outside the period and the whole lot has been sold in one lump sum. There is nothing at all in that argument, therefore, except the usual dust which is thrown in the jury's eyes from time to time.

I return to the first point that the Attorney-General made, on the question of speculation. I may be wrong, but I have not seen the word speculation" used once in the Bill. I have seen all sorts of descriptions, but not the actual word. Speculation relates to motive, and the whole Bill is designed to remove the question of motive. The Bill says that if a person buys stocks and disposes of them within six months we are not concerned with his motive. He will be deemed to have made a profit and will pay the tax. If he sells after six months we are not concerned with his motive and he is deemed to have realised a surplus on an investment on which he does not pay tax.

The Bill is designed to obviate going into the question of motives. To say that the inherent probability is that wherever this sort of sale arises it was not done with a view to making a profit, but was only incidental to carrying on the business, is an argument which the Attorney-General cannot use. In short, a distinction has been drawn. There is no justification whatsoever for the distinction and on the philosophy of the Bill, never mind the philosophy of the Labour Party point of view, this exemption should not stand. I therefore appeal to my right hon. and hon. Friends to press the Amendment to the full.

Question put, That the words proposed to be left out, to "shall" in line 38, stand part of the Clause:—

The Committee divided: Ayes 226, Noes 178.

Division No. 197.]
AYES
[9.5 p.m.


Aitken, W. T.
Barber, Anthony
Bell, Ronald


Ashton, Sir Hubert
Barlow, Sir John
Berkeley, Humphry


Atkins, Humphrey
Barter, John
Bridgood, John C.


Balniel, Lord
Batsford, Brian
Biffen, John




Bingham, R. M.
Harrison, Col. Sir Harwood (Eye)
Pearson, Frank (Clitheroe)


Birch, Rt. Hon. Nigel
Harvey, Sir Arthur Vere (Macclesf'd)
Peel, John


Bishop, F. P.
Harvie, Anderson, Miss
Percival, Ian


Black, Sir Cyril
Hastings, Stephen
Peyton, John


Bossom, Clive
Heald, Rt. Hon. Sir Lionel
Pickthorn, Sir Kenneth


Box, Donald
Henderson, John (Cathcart)
Pike, Miss Mervyn


Boyd-Carpenter, Rt. Hon. John
Hill, Mrs. Eveline (Wythenshawe)
Pilkington, Sir Richard


Boyle, Sir Edward
Hill, J. E. B. (S. Norfolk)
Pitt, Miss Edith


Bromley-Davenport,Lt.-Col.SirWalter
Hirst, Geoffrey
Pott, Percivall


Brooke, Rt. Hon. Henry
Hobson, Sir John
Prior-Palmer, Brig. Sir Otho


Brooman-White, R.
Holland, Philip
Proudfoot, Wilfred


Brown, Alan (Tottenham)
Hollingworth, John
Pym, Francis


Browne, Percy (Torrington)
Hopkins, Alan
Quennell, Miss J. M.


Bryan, Paul
Hornby, R. P.
Ramsden, James


Buck, Antony
Hornsby-Smith, Rt. Hon. Dame P.
Rawlinson, Peter


Billiard, Denys
Howard, John (Southampton, Test)
Redmayne, Rt. Hon. Martin


Bullus, Wing Commander Eric
Hughes Hallett, Vice-Admiral John
Rees, Hugh


Burden, F. A.
Hughes-Young, Michael
Rees-Davies, W. R.


Campbell, Gordon (Moray &amp; Nairn)
Hulbert, Sir Norman
Renton, David


Cary, Sir Robert
Hutchison, Michael Clark
Ridley, Hon. Nicholas


Channon, H, P. G.
Iremonger, T. L.
Ridsdale, Julian


Chataway, Christopher
Irvine, Bryant Godman (Rye)
Roberts, Sir Peter (Heeley)


Chichester-Clark, R.
James, David
Robinson, Rt. Hn. Sir R. (B'pool, S.)


Clark, William (Nottingham, S.)
Jenkins, Robert (Dulwich)
Roots, William


Clarke, Brig. Terence (Portsmth, W.)
Johnson, Dr. Donald (Carlisle)
Ropner, Col. Sir Leonard


Collard, Richard
Johnson, Eric (Blackley)
Russell, Ronald


Cooper, A. E.
Johnson Smith, Geoffrey
Scott-Hopkins, James


Cordeaux, Lt.-Col. J. K.
Jones, Rt. Hn. Aubrey (Hall Green)
Sharpies, Richard


Corfield, F. V.
Kerans, Cdr. J. S.
Shepherd, William


Costain, A. P.
Kerr, Sir Hamilton
Skeet, T. H. H.


Coulson, Michael
Kimball, Marcus
Smith, Dudley (Br'ntf'd &amp; Chiswick)


Courtney, Cdr. Anthony
Kirk, Peter
Smithers, Peter


Craddock, Sir Beresford
Kitson, Timothy
Smyth, Brig, Sir John (Norwood)


Crowder, F. P.
Lancaster, Col. C. C.
Speir, Rupert


Cunningham, Knox
Legge-Bourke, Sir Harry
Stanley, Hon. Richard


Curran, Charles
Lewis, Kenneth (Rutland)
Stevens, Geoffrey


Currie, G. B. H.
Lilley, F. J. P.
Steward, Harold (Stockport, S.)


Dalkeith, Earl of
Lindsay, Sir Martin
Stodart, J. A.


Dance, James
Litchfleld, Capt. John
Stoddart-Scott, Col. Sir Malcolm


d'Avigdor-Goldsmid, Sir Henry
Lloyd, Rt.Hn. Geoffrey (Sut'nC'dfield)
Studholme, Sir Henry


Deedes, W. F.
Lloyd, Rt. Hon. Selwyn (Wirral)
Talbot, John E.


Donaldson, Cmdr. C. E. M.
Longden, Gilbert
Tapsell, Peter


Doughty, Charles
Loveys, Walter H.
Taylor, Edwin (Bolton, E.)


Drayson, G. B.
Lucas-Tooth, Sir Hugh
Taylor, Frank (M'ch'st'r, Moss Side)


Duncan, Sir James
MacArthur, Ian
Taylor, W. J. (Bradford, N.)


Eden, John
Maclean,SirFitzroy(Bute&amp;N.Ayrs.)
Teeling, Sir William


Elliot, Capt. Walter (Carshalton)
McLean, Neil (Inverness)
Temple, John M.


Elliott,R.W.(Nwcastle-upon-Tyne,N.)
Macleod, Rt. Hn. Iain (Enfield, W.)
Thatcher, Mrs. Margaret


Emmet, Hon. Mrs. Evelyn
Macmillan, Maurice (Halifax)
Thompson, Kenneth (Walton)


Errington, Sir Eric
Macpherson, Niall (Dumfries)
Thornton-Kemsley, Sir Colin


Farey-jones, F, W.
Maginnis, John E.
Tiley, Arthur (Bradford, W.)


Farr, John
Manningham-Buller, Rt. Hn. Sir R.
Touche, Rt. Hon. Sir Gordon


Fell, Anthony
Markham, Major Sir Frank
Turner, Colin


Fisher, Nigel
Marten, Neil
van Straubenzee, W. R.


Fletcher-Cooke, Charles
Mathew, Robert (Honiton)
Vaughan-Morgan, Rt. Hon. Sir John


Fraser, Hn. Hugh (Stafford &amp; Stone)
Matthews, Gordon (Meriden)
Vickers, Miss Joan


Fraser, Ian (Plymouth, Sutton)
Mawby, Ray
Vosper, Rt. Hon. Dennis


Freeth, Denzil
Maxwell-Hyslop, R. J.
Wakefield, Sir Waved


Gammans, Lady
Mills, Stratton
Walder, David


Gardner, Edward
Miscampbell, Norman
Walker-Smith, Rt. Hon. Sir Derek


Gibson-Watt, David
More, Jasper (Ludlow)
Ward, Dame Irene


Gilmour, Sir John
Morrison, John
Webster, David


Goodhart, Philip
Nabarro, Gerald
Wells, John (Maidstone)


Goodhew, Victor
Neave, Airey
Williams, Dudley (Exeter)


Gower, Raymond
Nicholson, Sir Godfrey
Wills, Sir Gerald (Bridgewater)


Grant, Rt. Hon. William
Noble, Mlchael
Wilson, Geoffrey (Truro)


Grant-Ferris, Wg. Cdr. R.
Nugent, Rt. Hon. Sir Richard
Wise, A. R.


Green, Alan
Oakshott, Sir Hendrie
Wolrige-Cordon, Patrick


Gresham-Cooke, R.
Osborne, Sir Cyril (Louth)
Woollam, John


Grosvenor, Lt.-Col. R. G.
Page, Graham (Crosby)
Worsley, Marcus


Gurden, Harold
Pannell, Norman (Kirkdale)



Hamilton, Michael (Wellingborough)
Partridge, E.
TELLERS FOR THE AYES:




Mr. Finlay and Mr. McLaren.




NOES


Ainsley, William
Bennett, J. (Glasgow, Bridgeton)
Broughton, Dr. A. D. D.


Allaun, Frank (Salford, E.)
Blackburn, F.
Brown, Rt. Hon. George (Belper)


Awbery, Stan
Blyton, William
Brown, Thomas (Ince)


Bacon, Miss Allce
Boardman, H.
Butler, Mrs. Joyce (Wood Green)


Balrd, John
Bottomley, Rt. Hon. A. G.
Callaghan, James


Baxter, William (Stirlingshire, W.)
Bowden, Rt. Hn. H. W. (Lelcs.S.W.)
Chapman, Donald


Beaney, Alan
Bowen, Roderlc (Cardigan)
Cliffe, Michael


Bellenger, Rt. Hon. F. J.
Braddock, Mm. E. M.
Collick, Percy


Bence, Cyril
Brockway, A. Fenner
Corbet, Mrs. Freda




Craddock, George (Bradford, S.)
Jay, Rt. Hon. Douglas
Price, J. T. (Westhoughton)


Cronin, John
Jeger, George
Probert, Arthur


Crosland, Anthony
Jenkins, Roy (Stechford)
Pursey, Cmdr. Harry


Cullen, Mrs. Alice
Johnson, Carol (Lewisham, S.)
Randall, Harry


Davies, G. Elfed (Rhondda, E.)
Jones, Dan (Burnley)
Rankin, John


Davies, Harold (Leek)
Jones, Elwyn (West Ham, S.)
Redhead, E. C.


Davies, Ifor (Gower)
Jones, Jack (Rotherham)
Rhodes, H.


Davies, S. O. (Merthyr)
Jones, J. Idwal (Wrexham)
Roberts, Albert (Normanton)


Diamond, John
Jones, T. W. (Merioneth)
Roberts, Goronwy (Caernarvon)


Dodds, Norman
Kelley, Richard
Robertson, John (Paisley)


Donnelly, Desmond
Key, Rt. Hon. C. W.
Rodgers, W. T. (Stockton)


Driberg, Tom
King, Dr. Horace
Ross, William


Ede, Rt. Hon. C.
Lawson, George
Short, Edward


Edwards, Rt. Hon. Ness (Caerphilly)
Ledger, Ron
Silverman, Sydney (Nelson)


Edwards, Robert (Bilston)
Lee, Frederick (Newton)
Skeffington, Arthur


Edwards, Walter (Stepney)
Lee, Miss Jennie (Cannock)
Slater, Joseph (Sedgefield)


Evans, Albert
Lever, L. M. (Ardwick)
Smith, Ellis (Stoke, S.)


Finch, Harold
Lewis, Arthur (West Ham, N.)
Sorensen, R. W.


Fletcher, Eric
Loughlin, Charles
Spriggs, Leslie


Foot, Dingle (Ipswich)
Lubbock, Eric
Steele, Thomas


Foot, Michael (Ebbw Vale)
Mabon, Dr. J. Dickson
Stones, William


Forman, J. C.
MacColl, James
Strachey, Rt. Hon. John


Fraser, Thomas (Hamilton)
MacDermot, Niall
Stross,Dr.Barnett(Stoke-on-Trent,C.)


Galpern, Sir Myer
Mclnnes, James
Swain, Thomas


George, LadyMeganLloyd(Crmrthn)
McKay, John (Wallsend)
Swingler, Stephen


Ginsburg, David
McLeavy, Frank
Taverne, D.


Gourlay, Harry
MacMillan, Malcolm (Western Isles)
Taylor, Bernard (Mansfield)


Greenwood, Anthony
Mallalleu, E. L. (Brigg)
Thomas, Iorwerth (Rhondda, W.)


Grey, Charles
Mapp, Charles
Thompson, Dr. Alan (Dunfermilne)


Griffiths, David (Rother Valley)
Mason, Roy
Thomson, G. M. (Dundee, E.)


Griffiths, Rt. Hon. James (Llanelly)
Mayhew, Christopher
Wade, Donald


Griffiths, W. (Exchange)
Millan, Bruce
Wainwright, Edwin


Grimond, Rt. Hon. J.
Milne, Edward
Warbey, William


Gunter, Ray
Mitchison, G. R.
Watkins, Tudor


Hale, Leslie (Oldham, W.)
Morris, John
Weitzman, David


Hall, Rt. Hn. Glenvil (Colne Valley)
Moyle, Arthur
White, Mrs. Eirene


Hart, Mrs. Judith
Mulley, Frederick
Whitlock, William


Hayman, F H.
Neal, Harold
Wilkins, W. A.


Henderson, Rt. Hn.Arthur(Rwly Regis)
Noel-Baker,Rt.Hn.Philip(Derby.S.)
Williams, D. J. (Neath)


Herbison, Miss Margaret
Oliver, G. H.
Williams, LI. (Abertillery)


Holman, Percy
Oram, A. E.
Williams, W. R. (Openshaw)


Holt, Arthur
Oswald, Thomas
Willis, E. G. (Edinburgh, E.)


Hooson, H. E.
Owen, Will
Wilson, Rt. Hon. Harold (Huyton)


Houghton, Douglas
Padley, W. E.
Winterbottom, R. E.


Howell, Charles A. (Perry Barr)
Paget, R. T.
Woodburn, Rt. Hon. A.


Howell, Denis (Small Heath)
Panned, Charles (Leeds, W.)
Woof, Robert


Hoy, James H.
Parkin, B. T.
Yates, Victor (Ladywood)


Hughes, Cledwyn (Anglesey)
Pearson, Arthur (Pontypridd)
Zilliacus, K.


Hughes, Emrys (S. Ayrshire)
Pentland, Norman



Hunter, A. E.
Plummer, Sir Leslie
TELLERS FOR THE NOES:


Hynd, H. (Accrington)
Popple well, Ernest
Mr. G. H. R. Rogers and



Prentice, R. E.
Mr. McCann.

9.15 p.m.

Mr. F. V. Corfield: I beg to move, in page 13, line 38, after "interest)" to insert:
or land used for the purposes of husbandry only, together' with the farmhouse, farm cottages and farm buildings used in connection with that land".
I can explain the abject of this Amendment very shortly. It is designed to ensure that farmland managed as a genuine agricultural enterprise is not included as a chargeable asset under this Clause.
As I read the Clause—it may well be that I have read it incorrectly—farmland would be excluded only if it were ancillary to some farm buildings. This seems to me an odd way of expressing this sort of situation, because normally the buildings are ancillary to the farmland. There are cases in which genuine farming enterprises can be carried out on land on

which there are no buildings. It can happen in many cases that a forced sale takes place within the three-year period, particularly when a farming enterprise is carried on as a partnership, and something happens, and the partnership is dissolved.
I hope that, even if my right hon. Friend the Chief Secretary cannot accept the Amendment, he will assure us that it is the Government's intention to exclude genuine farmland from the operation of this Clause and that if it is not excluded at the moment he will move an Amendment to exclude it at a later date.

Mr. Ronald Bell: I associate myself with what my hon. Friend the Member for Gloucestershire, South (Mr. Corfield) has said. I should like to go even further,


because it seems to me that not only farmland but all land and all kinds of real property should come within the ambit of an Amendment like this. It is difficult to understand why there should be this rather penal provision when the land has not been sold by the owner but has been compulsorily taken from him.

Mr. Brooke: I will confine myself to the case which has been put forward so cogently and pleasantly concisely by my hon. Friend the Member for Gloucestershire, South (Mr. Corfield).
The Government considered very carefully what should be the appropriate treatment of farms and farmland in this Bill. As my hon. Friend has properly observed, the Bill is so drafted that buildings occupied and used by the owner for the purpose of farming are exempt under subsection (4) from any charge under Case VII, and the farmhouse, if it has been occupied by the farmer as his sole or main residence, is exempt from the charge under subsection (3). To that extent, the Amendment is superfluous.
It would be impossible to give a general exemption to farmland, as I think he appreciates. If there were such an exemption, anyone who owned agricultural land could sell pieces of it from time to time within the three-year period for development at a substantial profit and would escape the charge to tax entirely. If my hon. Friend's suggestion were accepted, the speculators would, in my judgment, step in and would decide that there was an attractive possibility of buying up farms, farming them for a very short time themselves, and then selling part of the land for development. I am sure that that is not what my hon. Friend wishes. His concern is that the farmer shall be able to carry on his business in the proper way.
My hon. Friend raised the question of partnership. It is not the normal case, but it might sometimes occur. If the partnership is being broken up and the land is remaining in agricultural use, I think it most unlikely that there would be any severe charge to tax because the land would not be liable for tax had it been owned for more than three years. Movements in agricultural prices are not

so swift that vast capital gains arise within three years on the sale of agricultural land for continued agricultural use. If, on the other hand, when a partnership is being broken up part of the farmland is sold for development purposes, there seems no reason why a charge for tax should not arise.
The Government have considered the matter carefully. The question of compulsory purchase, to which my hon. Friend the Member for Buckinghamshire, South (Mr. Ronald Bell) referred, will arise on a subsequent Amendment and I say no more about it now. My hon. Friend the Member for Gloucestershire, South will, however, appreciate that it would not be fair to anybody to give a general exemption for farmland from the Bill as he suggests.
I hope that what I have said about the farm buildings and the farmhouse will satisfy my hon. Friend that a substantial part of the purpose of his Amendment is already satisfactorily dealt with in the Bill.

Mr. Corfield: I agree with a great deal of what my right hon. Friend has said, but would it not be possible to consider the problem of a partnership where one partner wishes to go on with partnership? It is possible to carry out substantial improvements to land by means of drainage and fencing, for example, even within three years. It seems to be wholly contrary to the intention of the Clause, which I support in principle, to include that type of improvement as chargeable for this purpose. If my right hon. Friend can either assure me that the point is already covered or consent to look into it, I will ask leave to withdraw the Amendment.

Mr. Brooke: I assure my hon. Friend that, as I understand the matter, if the value of the land has been enhanced by expenditure upon it for drainage or other purposes, that would be taken into account in the calculation and there would not be a charge under Case VII for the increase in the value of the land which had been brought about by expenditure on the part of the owner in improving the land. I hope that, with this assurance, my hon. Friend will feel able to withdraw the Amendment.

Mr. Corfield: On the basis of what my right hon. Friend has said, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Question proposed, That the Clause stand part of the Bill.

Mr. Ronald Bell: Perhaps it will be appropriate for me at this stage to make my few comments. I take it, Sir Robert, that you are not calling the further Amendment in the name of my hon. Friend the Member for Gloucestershire, South (Mr. Corfield), also in page 13, line 38, after "interest)" to insert:
and any land used for the purposes of husbandry only, farm house, farm building or farm cottages which are compulsorily acquired by any authority

The Deputy-Chairman: The Deputy-Chairman indicated assent.

Mr. Charles Loughlin: On a point of order. May we know just where we are? I understood you, Sir Robert, to put the Question, "That the Clause stand part of the Bill." Are we now discussing the possibility of dealing with an Amendment?

The Deputy-Chairman: No. The Question which I have put to the Committee is, "That the Clause stand part of the Bill." The hon. Member for Buckinghamshire, South (Mr. Ronald Bell) was, I think, seeking to raise on that Motion a point raised in an Amendment which can be discussed later.

Mr. Ronald Bell: I am obliged, Sir Robert.

Mr. Geoffrey Johnson Smith: I should be glad if my right hon. and learned Friend the Attorney-General could clear up two points in connection with Clause 10 (3). That provision exempts from a speculative gains tax the owner-occupied dwelling-house and also land which surrounds it up to an area of one acre. If we read further, we discover that a larger area may be so exempt having regard to the size and character of the dwelling-house. We note that the Commissioners are the people who will determine whether the larger area should be taken into account. I suppose that one of the things they must decide in coming to their judgment is whether or

not the larger area is required for the reasonable enjoyment of the residence.
I am sure there is a simple answer to my first point. It relates to the Commissioners taking into account the land which surrounds an owner-occupied residence. Suppose someone wishes to sell the property and has on the land a stable block, a service cottage or other outbuildings. It is possible to find small residences surrounded by perhaps five acres. Are those buildings also exempt from the effects of the tax, or are they regarded as a chargeable asset?
Secondly, is not the Clause giving rather wide powers to the Commissioners? I imagine that it is an issue of fact and the citizen has no recourse elsewhere as there is no right of appeal. If there were some legal dispute, the citizen could have recourse to the law. I am no lawyer, as must be apparent from that comment. However, there are many other people who are not lawyers, and I imagine that they might be worried about these powers.
The Commissioners are being asked to make a very subjective evaluation. They are being asked to say that an owner of a property who wants to sell it within the course of three years, or may have to sell it for personal reasons, shall pay tax if they decide that certain outbuildings are not an integral part of the property, or are not things which are required for the reasonable enjoyment of the property. I visualise the case in which a widow may wish to sell as a whole property left to her, with the buildings on it, and may be forced to pay a sizeable tax.
I should have thought that this was giving a wide power to the Commissioners when they are having to make a very subjective evaluation of what is and what is not to be included as a chargeable asset in properties of this nature.

The Attorney-General: My hon. Friend the Member for Holborn. St. Pancras, South (Mr. G. Johnson Smith) has raised two points, one relating to the Commissioners. The appropriate body here will either be the local General Commissioners, who will know the locality well and be able to determine such a problem when brought before them without any great difficulty,


one would have thought, or in particular cases the Special Commissioners. I do not think that they, with their knowledge of the area, will have any difficulty in discharging the task, should it be put before them.
The reason why it is necessary to make what is initially an arbitrary limit to the area of garden or grounds used for the enjoyment of the residents is that one of the frequent methods of securing large speculative gains now is to buy a property with extensive grounds and, while retaining the property, to sell part of the grounds for development. But, of course, where the house naturally would have a larger area than that specified in the Clause—larger than one acre —regard can be had to that by the Commissioners. I do not think that, in substance, any difficulty would arise with regard to that.
9.30 p.m.
My hon. Friend's second point with regard to other buildings apart from the dwelling. Insofar as these other buildings are distinct and separate buildings, they will not form part of the dwelling-house and will not be exempt from the charge. That is to say, cottages which are separate dwelling-houses will not be exempt, but buildings which really form part of the dwelling-house will be exempt.

Mr. Jasper More: Will my right hon. and learned Friend make clear what are the special cases in which recourse could be had to the Special Comissioners?

The Attorney-General: If anyone wishes to claim, in a sale of a house and grounds, that the area which should be regarded as reasonable for enjoyment of the house or grounds or garden exceeds one acre, he can go to the Commissioners and ask them to agree that it is a reasonable area.

Mr. More: My question related to the Special Commissioners.

The Attorney-General: They can deal with the matter, if he wants to go to them, just as well as the General Commissioners. They are two alternative bodies.

Mr. Houghton: I would advise any appellant to stick to the local Commissioners in a dispute of this kind.
None of us really likes this kind of Clause, which gives power to a body of Commissioners to determine a purely arbitrary matter of this sort, but it would have been wrong to have stuck to a limit of one acre, or any other acreage, in relation to the different types of houses that it may be necessary to deal with. It would be quite wrong, for instance, to regard one acre as the appropriate grounds to, say, Chatsworth House. A good many acres might go with that house.
The essential point is that, whatever the amount of land that goes with the house and is therefore exempt under this Clause, it should be regarded as inseparable from the reasonable enjoyment of the house. I am not so concerned about this, although I looked at it very carefully. But I am very anxious, in this and in other respects, to reduce the area of dispute between the taxpayers and the Inland Revenue. That is very desirable. Even though it may mean rougher justice and fixing arbitrary conditions, at least people know better where they stand than if there is some doubt that may have to be resolved on appeal.
I regret that subsection (4) is still in this Clause. It is a blemish. One of the disadvantages in ringing the changes on the Treasury Bench is that we do not have the same person making speeches on different Amendments or on different subsections of the same Clause. I thought that the Chief Secretary was much more robust in dealing with the reasoned Amendment on agricultural land than the Attorney-General was when dealing with subsection (4). I would have liked to have heard him dealing with the Amendment and the Chief Secretary dealing with subsection (4). But this very astute way in which they employ guile upon the Committee is rather disconcerting.
This Clause deals with the chargeable assets under the Bill. Whether they go as far as they should is a matter for judgment perhaps as time goes on. There are other sources of substantial speculative gains which are outside the


Clause. For example, works of art now appear to come very much into the range of speculative transactions. Although for the time being we think that the scope of the Clause is about as wide as it can be, I do not think that it will necessarily remain so for all time.
The Opposition must defend the Attorney-General on his last speech while opposing him on his earlier speech, and be fairly convinced by the Chief Secretary's reply on agricultural land. I notice that he had to reply to two speeches which were extremely brief and, on this side of the Committee, almost inaudible.

Mr. Glenvil Hall: May I revert to the issue about the Commissioners? Do I understand from the Attorney-General that an individual making an appeal can, at his own option, appeal either to the Special Commissioners or to the General Commissioners?

The Attorney-General: Yes.

Mr. G. Johnson Smith: I do not want to be a bore about subsection (3), nor to detain the Committee for too long, but I was a little unhappy with my right hon. and learned Friend's reply when he said that outbuildings, stable blocks and buildings of that nature, would be a chargeable asset if a sale took place within the three-year period.
There are two obvious circumstances in which a sale might be forced upon an individual. One is the death of a husband or wife when the survivor finds that the property is too large or too expensive for occupation and, therefore, wants to sell. Bearing in mind all the other problems which arise in a case like that, it seems monstrous to ask a person to pay tax on outbuildings when the residence and land surrounding it are being sold as a whole, in one lot.
fThe other circumstance is when someone who has bought a property of that nature—and there are many such examples in the Home Counties of which I have personal knowledge—within the period of three years is asked by his employer to move to another part of the country. Is that person to pay speculative gains tax on outbuildings when he is selling the property as a

whole? That is why I was very unhappy with my right hon. and learned Friend's reply.

The Attorney-General: I am sorry that my hon. Friend was unhappy about my reply. I should have thought that it was a very improbable case that there would be such a profit on the sale of outbuildings acquired within the last three years as to raise any real liability to any tax. One has to draw the line and the line is drawn with dwelling houses and gardens and grounds on one side and cottages, which may be convenient for housing staff in employment in the dwelling-house, on the other and outside the scope of the subsection.

Mr. Hirst: I am not at all satisfied. I cannot understand why these buildings should not be within the scope of the Clause. The argument of my hon. Friend the Member for Holborn and St. Pancras, South (Mr. G. Johnson Smith) is substantial. Outbuildings, in this context, are a part of the estate. The Attorney-General has not treated the Committee with the respect due to it. There must be some logic in this situation. To argue that, in theory, the outbuildings will not increase in value in the next three years is so much poppycock. We do not sit here at night to listen to arguments like that and it is scandalous that such remarks should be made.
On what grounds of logic is the Attorney-General asking the Committee seriously to say that outbuildings, which, of course, are part of the hereditament, should no longer he so and that after the short time of three years their value is not likely to increase? The whole thing makes me absolutely sick.

The Attorney-General: I hope that my hon. Friend the Member fat. Shipley (Mr. Hirst) has dined sufficiently well.
The answer which I gave to my hon. Friend the Member for Holborn and St. Pancras, South (Mr. G. Johnson Smith) is that if these buildings come under the heading of a dwelling, then they are exempt. But my hon. Friend was treating them as distinct and separate dwellings, and cottages was one of


his examples. Such dwelling would be outside the scope of subsection (3).

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 11.—(GENERAL OPERATION OF CHARGE.)

Sir Henry d'Avigdor - Goldsmid: I beg to move, in page 14, line 23, at the end to insert:
Provided that disposal of an asset shall not include its disposition or destruction through act of God, force majeure, compulsory purchase and other causes outside the control of the tax payer; and provided further that it shall include the non-exercise of an option or other right to acquire or dispose of chargeable assets.

The Deputy-Chairman: With that Amendment can be discussed the Amendment to Clause 10, page 13, line 38, after "interest)" insert:
and any land used for the purposes of husbandry only, farm house, farm building or farm cottages which are compulsorily acquired by any authority
and that in Schedule 9, page 51, line 14, at the end insert:
Provided that where money is paid under such a contract conferring an option and the option is not exercised, such money and any commission that is unconditionally payable in accordance with the contract shall be treated as losses allowable for the purposes of Case VII.

Sir H. d'Avigdor-Goldsmid: I make no apology for having read the Amendment in full. My right hon. and hon. Friends and I attach considerable importance to it. We think that where a taxpayer disposes of property against his will and by force majeure he should not thereby incur a charge for tax. I make no apology either for the element of tautology in the drafting of this Amendment. I was most anxious to see whether it would attract any attention from the other side of the Committee, and I am glad to see that one representative of the Liberal Party is present and that the Opposition Front Bench is as usual well filled.
There is here an interest not exclusive to this side of the Committee, because hon. Members on both sides are aware that compulsory purchase by local

authorities for housing purposes affects many people of humble means, and not only people of one political affiliation. I think, therefore, that we might have had better support from the other side of the Committee on this important point relating to the rights of the subject.
The obvious point that arises here is compulsory purchase by local authorities for the purpose of clearance. This is something with which we are all familiar and I need not labour it. There are other elements about which I shall say more. There is the compulsory purchase of shares under Section 209 of the Companies Act, 1948. This is a rather more sophisticated matter, and arises when a buyer has obtained 90 per cent. or more of the capital of a company and can require the holders of the remaining 10 per cent. of the shares to sell to him on the same terms as he acquired the other 90 per cent. Here again there are unwilling sellers being forced by force majeure to dispose of assets in circumstances which, as the Clause is drawn, would attract tax.
There is also the case of the person who is unlucky enough to have his house destroyed by fire. It is possible that, having over-insured, he might as a result of that accident come into possession of a larger sum of money than he originally paid for the house. These are things which occur, and I am sure my right hon. and hon. Friends will have no difficulty in expressing their view that these things should be outside the basis of taxation.
The second leg of the Amendment is slightly different. It refers specifically to options. I know that options are dealt with later in this Measure, but I bring them in here because I think it would be useful if the Government declared their intention in regard to options because there may be consequential changes to be faced later if their attitude is other than entirely negative.
9.45 p.m.
In the case of an option on a transfer of shares, if the option is exercised and the shares purchased and subsequently resold the price of the option is counted as an expense of the transaction. That seems perfectly clear logic and quite unexceptional. There are other cases which


are not quite so clear. Suppose the option is not exercised. Had it been exercised it would have been allowed as an expense. Surely it remains as an expense although it is not exercised. Contrary to the views expressed by hon. Members opposite during the last few days, shares do go down as well as up. In fact I would wager that more options are bought and not exercised than those which are exercised. That is not something subject to proof.
The Government should give us a clear reply about whether they have considered allowing an option as an expense whether it is exercised or not exercised. It should be allowed as a loss in connection with the assessment. Another rather more complicated case arises concerning options which companies sometimes give to their employees. There is a judgment of 1961 which renders those options liable to tax under Schedule E if the option has a value at the time it is granted, if, in other words, it is an option to purchase shares a: market price. An employee granted an option of this sort who has paid tax on it and finds later that it is not worth while exercising it because the value of the share has gone down, instead of going up as had been hoped, is then in a position of having been assessed for tax on an option which he has not been able to exercise. Surely there is a good case in equity for him to claim a rebate of taxation in respect of tax he has paid on an option which he did not exercise.
I raise these points in language which I hope will be intelligible to both sides of the Committee, not that I think there is the tiniest chance of the Parliamentary draftsmen being able to accept them but because they form a useful peg on which to rest an argument which goes very deep. It concerns the rights of the people of this country, not rich men, but every owner of property, however humble, which is liable under this Clause for taxation in respect of matters in which he himself has been subject to force majeure.

Mr. Ronald Bell: What I say three times is true. On this occasion, I think that I must have struck the right moment

for making the observations I sought to make earlier.
I wish to support everything said by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), especially about compulsory purchase. I am less entitled to speak of the intricacies of options than he is. The wrong which will be done if the owner of land has to pay tax under this new arrangement because the property has been compulsorily purchased is, I think, quite obvious to everyone.
A man who possibly did not need to sell the property and make a capital profit at all, whose intention was to remain the owner of it—in the case of a Harm perhaps to go on farming it—because a Department of State or local authority, against his will, takes the property from him, is made to pay at the full rate of Income Tax or Surtax on the notional profit which has been made. I think that this was clearly not within the original intention of the Government in putting forward the Bill, but it may be a consequence which they find it a little difficult to avoid.
I suppose that it may be said that sometimes there are voluntary transactions in the shadow of compulsory purchase orders and that it may be a little difficult to distinguish between the voluntary sale which has been made by negotiation with a Department of State or the local authority and the case where negotiations have broken down and the transaction takes place under the compulsory powers. I can see that there is a practical difficulty there. It might mean that in nearly all cases property would be bought compulsorily within three years of its purchase and there would not be a negotiated settlement.
I do not think that is a very serious consideration, or that it matters very much, since the price now paid on a compulsory purchase is the fair market price, which should not differ substantially from the price that would be paid by voluntary negotiation between the acquiring authority and the seller. If the making of the exception proposed by my hon. Friend in his Amendment were to mean that invariably we had the compulsory purchase procedure adopted in the not very numerous cases where


property was taken within three years of being acquired, I would not think that that was any major inconvenience.
The present charge is conceived, certainly in the method of its computation, as being levied upon something which is "an adventure in the nature of trade". I take those words from Clause 12 of the Bill. It cannot be said that a man whose property is taken from him by a Department of State against his will is engaging in an adventure by way of trade. If that is a fair argument, then something in the nature of my hon. Friend's Amendment should be accepted by the Government. Otherwise, to take one example, a man who has bought a farm and wants to be a farmer, and has it taken from him compulsorily by a Department of State or a local authority, perhaps in time of inflation, may find that there is a paper profit. He has to pay at the full rate of tax on that paper profit and then has to buy a farm with assets which have been depleted by perhaps 30 per cent.
That is a real and substantial injustice. It is no good the hon. and learned Member for Kettering (Mr. Mitchison) shaking his head. I do not know whether he means it is not an injustice, or that it would not happen.

Mr. Mitchison: As the hon. Member asks me, I would say that I doubt whether he would be disposing of his property.

Mr. Bell: What the hon. and learned Gentleman is saying is that the acquisition by compulsory purchase would not fall within the ambit of the tax. If what the hon. and learned Gentleman says is borne out by my hon. Friend, and the Solicitor-General says that it is not necessary because such transactions would not be caught by the tax, I am sure that my hon. Friend would be delighted not to proceed with his Amendment, but I have no such confidence. My own reading of the Bill, which I advance in all humility, is that such transactions will be caught as the Bill is at present drafted.

Mr. Glenvil Hall: I think that I have followed the hon. Gentleman's argument correctly. As I understand it, in his illus-

tration the individual would purchase the farm to live there. If that is so, the Clause would not bite.

Mr. Bell: The right hon. Gentleman is mistaken. The exemption for dwelling-houses does not extend to unlimited land appurtenant to them. Indeed, it extends only to a limited cartilage of one acre. I am not at all sure that it would extend to one acre of farmland. It is for land to be enjoyed with the house, land in the nature of a garden. It is certain that an ordinary farm of about 90 acres would not come within the exemption in favour of a dwelling-house. I think that is beyond doubt. [HON. MEMBERS: "No."] Naturally, I stand to be corrected, but I do not think that I am wrong. If a person who bought a farm with the intention of farming it had it taken from him within three years, and if general farm prices had risen by 20 or 30 per cent, in that district in that period, he would have to treat it as a profit and pay full Income Tax and possibly Surtax on it. He would then have to buy a farm with the depleted assets which he had left.
That is the position under the Bill as drafted. It is plainly unjust. I can see that certain practical difficulties would be encountered in any attempt to solve the problem, but I say that they are not insuperable and that the effort should be made in common justice to people who find themselves in such difficulties.

Mr. H. Rhodes: The hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) said that he hoped that the Amendment would attract the attention of the Opposition. It has attracted the attention of one Member of the Opposition—me. In the past I have taken a good deal of notice of the hon. Member's speeches and agreed with many of them, but I cannot agree with him now. When I saw the words "compulsory purchase" in the Amendment my mind went back to an occasion before Christmas when the Bank of England sold a property. The property was the St. Luke's property, which used to be the old Mint. The Bank sold this property some weeks before Christmas to Oddenino's Investment Company for £900,000. The property was resold at the beginning of this year for £1,500,000.
I raised this matter in the House. The Minister who I expect will reply to the Amendment, the Economic Secretary, said this:
I am informed by my right Friend the Minister of Agriculture that it was not until some months after the Bank had contracted to sell the site that he was advised that it might be suitable for the Covent Garden Market Authority."—[OFFICIAL REPORT, 25th January, 1962; Vol. 652, c. 396.]
It would be outside the limits of order if I attributed any blame to the Minister of Agriculture or to the Bank of England for their ineptitude in not being aware of legislation which was before the House of Commons. It is not my purpose to do that tonight. I want rather to direct the attention of the Committee to the item compulsory purchase "in the Amendment.
It so happened that the L.C.C. bought the property from Oddenino's Investment Trust. As this property was required for the new Covent Garden Scheme, the L.C.C. had compulsory powers, but it did not exercise them. Despite the fact that the price for the building at the beginning of the year had been £1½ million, showing a clear profit of £600,000 in a few weeks, the L.C.C. did not press for acquisition by compulsory purchase. Why was that? The reason was that it got a better price without.
If it had not so been able to get a better price the L.C.C. would be shown in a very bad light indeed, and it could be accused of ineptitude, but in such circumstances, were this Amendment accepted, that Trust would have held back for a better price, so that the L.C.C. in exercising its powers of compulsory purchase would have paid a higher price. Although I do not expect the Economic Secretary to refer to ineptitude on the part of anybody involved in that transaction, I hope that my argument is strong enough to induce him to reject the Amendment.

10.0 p.m.

Mr. Barber: This Amendment concerns a number of important and difficult issues. They are important because they raise a point of principle —Ithis has, I think, been recognised on both sides of the Committee—and they

are difficult because, if we were to adopt even in part the suggestions made, we should have to give most careful consideration to the consequences of doing so.
The proviso that my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) wishes to insert falls, as he indicated, broadly into two parts—the part concerned with what one might call involuntary disposal, and the part concerned with options that are not exercised. I should like to adopt his approach to the matter and deal with it in those two separate compartments; in other words, to deal first with involuntary disposal.
I want, at the outset, to clear away one point. I would remind the Committee of the terms of the first leg of the proviso which my hon. Friend wishes to insert:
Provided that disposal of an asset shall not include its disposition or destruction through act of God, force majeure, compulsory purchase and other causes outside the control of the tax payer …
To some extent, the terms of the proviso are unnecessary because, under the Bill as drafted, the destruction of an asset, which is specifically referred to in the Amendment, does not involve its disposal. To take the case where a property is purchased, and where the three-year period applies, and the property is destroyed by fire within that period, that destruction will not, in itself, give rise to a charge under Case VII. Furthermore, if one assumes, as did my hon. Friend in the case he gave, that the property was insured and that the insurance money exceeded the cost of the acquisition of the property, the mere fact that the property was destroyed by fire and that the insurance moneys received were greater than the cost of acquiring the property, would not, in itself, give rise to a charge under Case VII. I ask, therefore, what is left of the effective operation of the first leg of my hon. Friend's Amendment? The answer is, I think, the very important category of involuntary disposals which are at present within the scope of Case VII and which this proviso would take outside.
This raises a point of both principle and practicability. The point of principle is this. My right hon. and learned Friend has explained why he is not in favour of a conventional capital gains tax and why this part of the Bill is concerned in the main with transactions of a speculative character. I say "in the main" because it simply is not practicable in trying to identify what transactions are of a speculative character to rely on the test of motive. He has, therefore, followed the practice of a good many European countries and has incorporated a time test.
As I understand it, the point behind the first leg of the Amendment is that the motive is clear and that the transactions are not of a speculative character because they are involuntary. This point merits our most careful consideration. I am a little surprised that on a matter concerning compulsory purchase there is no representative of the Liberal Party here. However, there are two types of compulsory acquisition which immediately come to mind. The first is the compulsory acquisition of shares under Section 209 of the Companies Act, 1948, and, of course, the compulsory acquisition of land. Different considerations apply to each.
Regarding the former, the compulsory acquisition of shares, I would remind the Committee that Section 209 of the 1948 Act enabled a company which had acquired 90 per cent. of the shares held by another company, with the agreement of the majority of its old shareholders, to compel a dissenting minority to do the same as the assenting majority had agreed to do. I am sure that the Committee will agree, in the context of the proposals in the Amendment, that there would be no ground for exempting a person who at the time of buying the shares knew that the other company was proposing to take them over. He would, after all, have bought the shares in the knowledge of what was to take place. The fact is that in these cases where there is compulsory acquisition within six months of the purchase of the shares, the odds are strongly in favour of the person concerned having had some knowledge.
It follows that in the vast majority of cases—perhaps not in every one—persons who are compelled to dispose of

their shares under this Section will be those who bought the shares in the anticipation of that event and have done so for whatever profit it would give them. There is another important aspect to be considered, and I am sure that my hon. Friends will see the force in it. To exempt those who dispose of their shares could have awkward effects on arrangements for company amalgamations, for those who agreed to dispose of them in connection with the amalgamation would be liable to be taxed while those who refused to agree would not be subject to tax on any profit they made. I do not see how one could exempt them all. The charge in such cases is likely to be of very limited application because of the way in which paragraph 12 of the 9th Schedule operates.
I now turn to the compulsory acquisition of land. My right hon. and learned Friend had already given a great deal of consideration to this point before the Bill was published and I must remind the Committee of some of the very real difficulties which are involved in providing exemption in these cases. I want to be fair and to present the other side, too.
The first and most obvious difficulty is that which was mentioned by my hon. Friend the Member for Buckinghamshire, South (Mr. Ronald Bell). If, for example, a local authority wished to acquire a piece of land and agreed to a mutually satisfactory purchase price, as frequently happens, and the land was conveyed within the three-year period, tax would be due, but if the vendor's next de-or neighbour declined to sell his land, required for the same project, and the machinery of compulsory purchase was brought into operation, he would avoid tax. The result would be that where there were compulsory powers of acquisition in the background nobody would enter into a voluntary sale, if it was within the relevant period, and everybody would insist upon his land being compulsorily acquired.
It follows that if we did what our hon. Friend suggests we would have to provide exemption not only where land is compulsorily acquired but also where land is disposed of voluntarily but where there are compulsory powers of acquisition in the background. The Committee


will immediately see that this goes beyond the terms of the Amendment and —I put it no higher—it would not be easy to translate it into legislative form. But we are looking at this aspect already.

Mr. Ronald Bell: Is there any difficulty in going through the form of compulsory purchase and having an agreed price? This is not unusual. There is often consent to compulsory purchase and then agreement about the price and one merely goes through the drill. There is no disadvantage. I should have thought that that would be a solution to this difficulty.

Mr. Barber: I was trying to point out that if we travelled along the lines of the Amendment and did not go further it would surely mean that it would pay a person not to enter into a voluntary sale and to insist that he was compulsorily acquired. This seems to me to be a relevant consideration. If we were able to meet my hon. Friends on this very important point, we would all like to do so in such a way that, by virtue of our fiscal legislation, we would not force people to insist upon compulsory acquisition when they would otherwise not do so. That was the only point I was trying to make.
I am sure that my hon. Friends will not under-estimate these difficulties, but I want to be frank and to say that I see the force of the argument of my hon. Friend the Member for Buckinghamshire, South that in a bona fide case where a person buys land as an investment and, quite out of the blue and against his wishes, it is compulsorily acquired, such a case is not in the nature of speculation. This is a very appealing argument. I am trying to present the case perfectly fairly.
There is another point in favour of my hon. Friends which I do not think has been raised. It is that if the law remains as it stands in the Bill there would seem to be an incentive for a person who is approached by the local authority to hold out and employ delaying tactics for a sufficiently long term to take the trans action outside the three-year period. This is an aspect which has been mentioned from the benches opposite and which we have to consider very carefully.

I hope that the Committee will agree that I have tried to present fairly both the difficulties and the arguments in favour of an amendment. I cannot make any promise, but I can give the firm assurance to the Committee that in the light of what has been said this evening we will look at the matter again between now and Report and see whether anything can be done to exclude from the charge the bona fide case of the disposal of the land where there are compulsory purchase powers.
10.15 p.m.
I am sorry to be so long, but the Amendment covers two rather different points. I turn now to the other aspect of the matter, the effect of providing loss relief in respect of the non-exercise of an option. The charge imposed by the Bill is limited to gains on the acquisition and disposal of assets within the prescribed time limit. Similarly, the losses which can be set against such gains are losses arising on the acquisition and disposal of assets within the time limit. If money is paid for an option to acquire an asset and the option is exercised, then the money paid for the option will be brought into account in arriving at the purchaser's cost if he is chargeable by reference to an acquisition and disposal within the time limit, and, of course, the same will apply to the seller's receipt on disposing of the asset if he is chargeable.
If the option is simply allowed to lapse, the man who has given money for the option gets no relief for it, and—this is important, in view of the way the Amendment is worded—the man who has received the option money is not charged in respect of it. There has been no acquisition and no disposal of the asset and, so far as the option itself is concerned, the person who acquired the option has not disposed of it but has allowed it to lapse.
As I understand it, the Amendment is designed to make the non-exercise of an option to acquire or dispose of chargeable assets a disposal for the purposes of the legislation, so that the person who had acquired an option and did not exercise it would have a loss, allowable under Case VII, equal to the cost of the option. But the Amendment does not impose a charge on the person who receives money for granting such an


option. Logically, I should have thought, that, if there were relief for the person who pays for an option and does not exercise it, the person who receives the money for the option should be charged on it. I am sorry that this is rather complicated, but I must explain the matter in detail.
Even, however, if this further step were taken, it would be difficult to secure a result consistent with a scheme for taxing short-term gains on the acquisition and disposal of assets. It would be unreasonable to charge the man who received money for an unexercised option under which he might be required to sell an asset he had held for many years. From this point of view, the granting of such an option might be a convenient way of proceeding to sell his assets, and it would not, therefore, be right to charge the option money as being a short-term receipt on its own.
Since this means that only some option money should be chargeable as receipts, it would be inconsistent to allow relief for all option money laid out on unexercised options because, equally, some options might have been taken with a view to acquiring a long-term investment and then abandoned. Clearly, there is no means of distinguishing between money paid for unexercised options which ought to be allowed and those which ought not to be allowed.
I am sure that the Committee will see the force of this argument. I assure my hon. Friend that we have looked at the matter with very great care. To return to the first leg of the Amendment, which deals, broadly, with involuntary disposals such as disposals by compulsory acquisition, I hope that, in view of the assurance I have given, my hon. Friend will not press the Amendment.

Mr. Mitchison: I have not much to add to what the Economic Secretary has just said. If the words "disposed of" and "disposition" are to be used all through the Bill as they are, it ought to be made perfectly clear whether what is referred to is a voluntary act or the mere alienation of property including alienation under compulsion. There is no definition of "dispose of" which I can find, and most of the Bill is consistent with either use of the expression.
Next, as to the point about compulsory purchase, this is to be looked at again and, no doubt, we shall hear more of it in one shape or another at a later stage. I much appreciate the hon. Gentleman's point that we do not want to set a premium on people who drive local authorities to compulsory purchase instead of arriving at a reasonable bargain, or on those who delay so long in coming to terms that the ordinary public functions of the local authority are impeded. I think that we must bear that in mind.
I find very great difficulty in seeing what is meant by the acquisition and disposal of an option, as such, and that is really what we are talking about. I agree with the hon. Gentleman that there is no logical distinction between those who pay money for an option and those who receive it. If it is to be brought into account on one side of the ledger, then, also, it should be brought into account on the other side. When I find that hon. Members opposite seek to bring it in only as a loss, I look not to their logic, but to their politics.

Sir H. d'Avigdor-Goldsmid: I think that my hon. Friend the Economic Secretary has dealt very fairly with the Amendment, and, on the compulsory acquisition side, I thought that the points he made were good. I think that we take particular comfort from the fact that he will look at the matter again in connection with compulsory acquisition of farm land—the point mentioned by my hon. Friend the Member for Gloucestershire, South (Mr. Corfield).
There is, however, one point with which he did not deal at all, and that concerns an option not bought for a cash payment, where option money is paid, but where an employee has received from his employers the grant of an option, and has been taxed on it, under a decision which, I am told, is that in the case of Abbott v. Philbin, in 1961. This is a very real point, because it is not remotely covered by what he said on options generally, when speaking of options being bought and sold. This is the option given on which the taxpayer has paid the tax on its value and subsequently has not exercised it because it did not prove to be of value. That seems to me to be a point deserving of


attention, but which he did not mention, and if my hon. Friend will give me an assurance that he will look at it I shall be pleased to withdraw the Amendment.

Mr. Barber: I am sorry that I did not refer to that point, but I did not give any consideration at all to the point before I heard my hon. Friend, because I did not think that it was covered in the second part of the Amendment. I will certainly look at it; indeed, I would

be most grateful if the Committee would allow me to look at it further with my right hon. and learned Friend the Attorney-General before giving the Committee an answer.

Sir H. d'Avigdor-Goldsmid: In view of that reply, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Sir H. d'Avigdor-Goldsmid: I beg to move, in page 16, line 36, at the end to add:
save that a person disposing of land by letting it for a term of twenty-one years or more shall not be chargeable under Case VII in respect of any income arising from the letting which is otherwise taxed.
This is an Amendment concerning a rather difficult technicality. I should like to draw the attention of the Committee to subsection (11) on page 16 of the Bill, which begins by saying:
Except as provided by section twelve of this Act, a person disposing of land by letting it for a term of less than twenty-one years shall not be chargeable under Case VII.
I do not need to bother the Committee with the rest of that Clause. The fact is that this is not a taxing Clause in itself in respect of land let on leases for twenty-one years or more, but, at the same time, there is a supposition from this exemption that land let on leases of twenty-one years or more will be considered as disposed of, for the purposes of Case VII, and if the disposal through the granting of a lease comes within three years of the acquisition of the land, tax will be levied. We are not told how the tax will be levied, but presumably the Revenue will capitalise the lease granted. I am glad to see my right hon. and learned Friend the Attorney-General shaking his head, because I have had to proceed by guesswork for the sad reason that no information has been afforded us on this Measure except this clue that transactions of less than twenty-one years would not be caught. I am dealing with transactions of twenty-one years or more, and, if the intention of my right hon. and learned Friend in shaking his head is to convey the impression that leases of twenty-one years or more granted within three years are not caught, I need say no more.

The Attorney-General: My hon. Friend talked about the capitalised value of the lease. That is not brought in, and I will explain why in due course.

Sir H. d'Avigdor-Goldsmid: I should be wasting the time of the Committee if I made a long speech which my right

hon. and learned Friend proposes to rebut. I would rather listen to his explanation.

The Attorney-General: I appreciate that what my hon. Friend the Member for Walsall, South (Sir H. d'AvigdorGoldsmid) is concerned about is whether, in computing the gains of tax under this provision, one capitalises the rents due under a lease for twenty-one years or more. I can tell him emphatically that that cannot happen under the Clause as it stands. There will be no question of bringing the capitalised value of the rent received under a lease into a Case VII computation.
Clause 12 (1) lays down that, where there is a chargeable disposal, the gain is to be computed as it would be far Case I of Schedule D in the case of
an adventure in the nature of trade",
and so the principles applicable to traders in land will apply for Case VII. When a trader grants a lease, for however long a period, the capitalised value of the rent payable under the lease cannot be brought into his accounts as a trading receipt. All that can be brought in is any premium payable for the lease. I need not go into the reasons for that at present.
It follows from what I have said that if any person comes within the scope of Case VII on disposing of land by way of lease, he will, like the trader in land, be liable only if and to the extent that he receives a premium for the lease. The position is different in relation to the case in which ownership of land is transferred in consideration of a permanent rent charge secured on the land. That has to be capitalised in the case of a trader, and so it would be here. But that is a very different point from the point raised by the Amendment.
I hope that I have satisfied my hon. Friend that his fears are not justified and that the position is as he wishes it to be.

10.30 p.m.

Mr. Graham Page: I do not know whether the fears of my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) have been soothed, but I am afraid that mine have not. I am not clear about what my right hon. and learned Friend the Attorney-General means.
There can be many different forms of lease in the taking of a large premium at a small rent or a large rent at a small premium. It may be 21 years, 50 years, 99 years, or more. He says that the only item to be taken into account on the disposal is the premium, but against what is that compared? If, for example, a man buys a freehold property and buys it for £50,000 and he then decides to dispose of a 21-year lease, he takes a premium of £20,000 and lets at a small rent. On the £20,000 compared with the £50,000 which he paid for the freehold there Gs no gain. How, then, does one value the property which is left to him and take that into account if it is the value of his reversion, and add that to the premium which he took, and leave out the capitalised value of the rent?
I cannot see how this will work in order to judge between the acquisition price and the disposal price, because there are two different aspects being dealt with. He has acquired freehold and he disposes of the leasehold. How does one compare one with the other, if one takes into account the value of what he paid for the freehold and against that any premium—and it is entirely for him to decide what premium he takes—he takes on letting? It would not seem to be chargeable against this. I do not know whether it is intended or not.

The Attorney-General: My hon. Friend has raised a different point from that raised by my hon. Friend the Member for Walsall, South. There is, as I am sure my hon. Friend will be aware, on reflection, a generally accepted procedure which has been recognised by the courts for arriving at the trader's profit in the case which he put. The cost of the land, that is, the price paid for it, plus allowable expenditure on it, is apportioned to the premium and the freehold reversion according to a formula. For Case VII the cost of the land will similarly be apportioned, and the taxpayer's chargeable gain or loss will be the difference between the premium and the cost apportioned thereto. That is, the cost of the land multiplied by the premium for the lease divided by the market value of the freehold reversion, plus premium for lease.
I hope that is now clear to my hon. Friend. It is a generally accepted procedure laid down by the courts.

Mr. Graham Page: That was crystal clear, but the point my right hon. and learned Friend has not dealt with is this. In the case of the trader who is charged, this charge of tax goes on for ever while the man is trading and therefore he is taxed on the rent which he is collecting in the ordinary way on his income, but in this case where it is a kind of tax which is being introduced we are considering only the gains during the three-year period, as I understand it. Therefore, it is obviously going to be a wise and very good way of escaping it to let at a high rent and never take a premium, because where is the gain out of it?

The Attorney-General: My hon. Friend now raises another point. I was dealing with the question on how to find the profit where the lease is let at a premium. I said that it is by application of the multiple formula which he so readily understood. It is true that we are not dealing here with rents. Rents will not come into Case VII for the reasons I have given. Rental may or may not bear tax. What will come into the Case in the kind of instance my hon. Friend quoted will be premium for the lease and premium for the lease only.

Mr. Mitchison: I trust that after the Attorney-General's exposition, no one on the other side of the Committee will say that any Schedules at the end of the Bill are in any way obscure. Secondly, we all know the Irishman's definition of a net: a number of holes with string round them. I seem to see some holes about.

Sir H. d'Avigdor-Goldsmid: I do not think that it is any coincidence that the Government have chosen my right hon. and learned Friend the Attorney-General to reply on the Clause and that he has the support of his hon. and learned Friend the Solicitor-General. Clearly, this is a matter of considerable complication. Despite the considerable help which I have had from my hon. Friend the Member for Crosby (Mr. Graham Page), if my right hon. and learned Friend had said categorically that the Clause catches only the premium, I


would have felt satisfied with his reply. He qualified that, however.
That being so, I can give only a qualified answer by saying that in so far as the Clause catches the premium, I am perfectly satisfied for the Amendment to be withdrawn. In so far as I am not qualified to evaluate the further considerations explained by my right hon. and learned Friend, in seeking leave to withdraw the Amendment I must say that I shall have to take professional advice and see whether, on Report, we must come back to the second part of what my right hon. and learned Friend has said. Subject to that, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.

Clause 12.—(COMPUTATION OF GAINS.)

Question proposed, That the Clause stand part of the Bill.

Mr. Ronald Bell: On this Clause, it would be appropriate to ask for an indication of the Government's view about whether gains of this character should count as earned or unearned income. I put down an Amendment to the Clause which has not been selected, possibly because it is starred, which suggests that such gains should be treated as earned income. As I interpret the Bill—I hope, correctly—they will be treated as unearned income and there would be no earned income allowance in respect thereof.
That seems to me to be a harsh step. Gains of this character have hitherto escaped taxation altogether, usually because they were infrequent in the case of the individual taxpayer and were able to be treated as casual profits. If he engaged in the operation sufficiently often, he became a trader or a person carrying on that operation by way of trade and so fell to be taxed in respect of its profits. The income was, however, earned income and the appropriate allowances were given. If a person did it once or at long intervals, no tax was payable and it was a casual profit.
What the Bill does is to catch the casual profit and subject it to tax, but illogically to subject it to a higher rate

of tax than would be incurred if the person carried out the operation repeatedly. This is difficult to understand.
In his Budget statement, my right hon. and learned Friend the Chancellor of the Exchequer said:
Certain types of quick gains secured by those not engaging in such operations as a business are under the present law treated as capital receipts. Although ordinary people find it difficult to distinguish them from income…
He said a little later:
Those who make a business of such transactions are taxed already as traders. Those to whom the new arrangements will apply are those of whom it cannot be established that they are carrying on a business. In my view, however, it is wrong that such people should escape taxation on such activities."— [OFFICIAL REPORT, 9th April, 1962; Vol. 657, c. 979.]
In Clause 12, which establishes the way in which the gains are to be computed, it says that
the gain accruing to a person … shall be computed for purposes of Case VII in the like manner as it would fall to be computed for purposes of Case I of Schedule D if the acquisition and disposal … had been an adventure in the nature of trade.
In other words, what we are doing is to say that the occasional profit which in the past has escaped taxation altogether shall in future be assimilated to those gains of a like character which have resulted from adventures in the nature of trade. Therefore, it seems to me that the logic of the argument—an argument which I do not in itself in any way resist—is that these should be treated as though they were trading profits as they would be if more frequently resulting and that, therefore, unearned income allowance should be given in respect of them.
I expect that there will be "technical difficulties"—there always are in Finance Bills—and, unlike my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), I am not sufficiently skilled in these recondite matters to be able even to understand the nature of the technical difficulties, let alone suggest a solution of them. But it seems to me to be on the face of it inequitable that something which was formerly thought to be immune to the tax and which it is now thought ought to be assimilated to the trading profit of the person who engages in that kind


of operation as a livelihood based upon capital gains, should nevertheless be differentiated in this disadvantageous way from the more frequent exercise of the same activity.
For these reasons, my view is that it should be regarded as earned income, and I hope that the Attorney-General will give some hope that this possibility will be examined.

Mr. Houghton: I entirely disagree with the hon. Member for Buckinghamshire, South (Mr. Ronald Bell). I must admit that I have been very surprised to read in various quarters an expectation that earned income relief would be applied to this tax. I always regarded earned income relief as quite inapplicable to a tax of this kind, and I was glad that the Government, in putting forward their proposals, were of the same opinion.
The hon. Gentleman has referred to subsection (1) with its cross-reference to Case I of Schedule D. It is true, of course, that the Clause refers to assessment under Case VII in like manner with Case I of Schedule D, but that, I have assumed, is merely to avoid a lot of tedious repetition. It does not mean that to be assessed in like manner with Case I carries with it the expectation that earned income relief will also be applied in a like manner. I think that is the obvious explanation of this cross-reference to Case I of Schedule D. It is an easy reference to the basis of assessment.
I have been wondering what would happen if a taxpayer said, "In order to get the benefit of earned income relief, I wish to be assessed under Case I of Schedule D." What would happen if the Inland Revenue said, "This profit is assessable under Case VII", and he replied, "No. I insist that it shall be assessed under Case I"? What would the Inland Revenue do? The taxpayer would certainly then get the benefit of earned income relief. But of course the time limit which might or might not be available to him would be removed—he would he assessable by the year. He might, however, employ the cessation provisions at a suitable point in time. I do not know.
It is an engaging question as to whether a taxpayer could insist on being assessed under a different case of Schedule D. He could presumably say, "This is not a speculative gain; I am

engaged in trade, and this in the nature of an adventure. Do not argue with me; I tell you what I am doing and I insist on being assessed accordingly." Perhaps the Attorney-General can tell us what would happen in that extraordinary situation.
On the general issue, I suggest that if a person does desire to have the benefit of earned income relief, then the tax assessment must come within the framework of the rest of the taxing code relating to earned income—that is to say, it must be in the nature of a trade and be assessable accordingly. Although it is very late for the right hon. and learned Gentleman to apply his mind to these hypothetical situations, he acquitted himself very well just now and probably he has the answer to this one.

10.45 p.m.

The Attorney-General: That complimentary observation—unusual from the hon. Member for Sowerby (Mr. Houghton)—has done a good deal to allay the suspicion I feel when I find myself in agreement with anything he says. On this occasion, his last remark has done a good deal to remove suspicion.
We gave careful consideration to this problem long before this Bill was introduced, and I am sure my hon. Friend the Member for Buckinghamshire, South (Mr. Ronald Bell) will agree with the general principle that a gain or a loss on a particular transaction is to be computed as it would be under Case I of Schedule D in the case of an adventure in the nature of trade.
I got his argument based on the reference to a trade adventure. That is merely put in as a method for computing the gain, and it does not state that the gain comes from trading. Of course, up to the present there have been many people who have been seeking to make it appear that they are not trading and so avoid liability for tax. One effect of the Bill may be to reverse the trend, but one does not know. No doubt those concerned with these matters will give careful consideration to that issue.
As far as the Inland Revenue is concerned, there is a question of fact—whether the person concerned is carrying on a trade, profession or vocation. The Revenue will have to be satisfied


about that by evidence before acceding to a claim from someone who up to now has been claiming not to be carrying on a trade yet has suddenly become a trader after the passage of this Bill.
To seek a title to earned income relief on gain falling under Case VII would be going too far. One starts from the hypothesis that there is no trade carried on, and liability under Case VII will be of a much more casual nature than when trade is carried on. Often, the work will be no more than knowing that a piece of land can be bought cheap and sold at a profit, or speaking to a broker on the telephone, or getting a bank to sell the results of allocation. To treat such gains within the ambit of earned income, as though they were like the salaries of a miner or a Minister or the income from a genuine business, would be unfair and might lead to ridicule.
I am glad my hon. Friend raised this point, for others have raised it outside this Committee, and it is right that it should be discussed even at this late hour. I hope that now he will not find it necessary to press his objection.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 13.—(DISPOSALS OF LAND EFFECTED INDIRECTLY.)

Mr. Graham Page: I beg to move, in page 18, line 44, to leave out "and notwithstanding that" and to insert "unless."
This Amendment is to the last line of page 18 and is intended to exclude a legatee from being charged under the Clause. May first, refer to Clause 11 (8) in which the legatee is excluded from the tax which we have been discussing? It says:
A person acquiring assets as a legatee shall not be chargeable under Case VII in respect of any acquisition and disposal by reference to that acquisition except as provided by section thirteen of this Act.…
It is that exception with which my Amendment deals.
I can see no real case for penalising the legatee under Clause 13 when he escapes under earlier Clauses. Let me give an example of how a legatee may

be subject to these penal provisions. A person has held shares in a landowning company for many years. He dies and bequeaths those shares to the legatee now mentioned in the Clause. The company acquires some property and the company disposes of the property within the three-year period. Although he did not acquire his shares necessarily within the three years, and his testator might have acquired them many years before, the legatee is caught for tax on those shares on the gain which is made by reason of the company having carried out a chargeable transaction during those three years; but he may dispose of those shares purely for Estate Duty purposes. He may find himself left with a legacy on which he has to pay Estate Duty and on which he has to pay a tax under the Clause.
That seems most unfair. If he is taking those shares in an estate which is paying 75 per cent. Estate Duty and he is also paying a short-term gains tax, he may be paying more than 100 per cent. in respect of a legacy which he might not then think worth receiving. I would have thought that it was right to relieve the legatee of liability under Clause 13 as he is relieved of liability under earlier Clauses.

Sir E. Boyle: We now proceed to Clause 13 which, as the Committee will realise, is designed to prevent persons from taking tax-free what is in substance a profit on land, by acquiring the land through the medium of a company and disposing of shares in that company, outside the six-month period which applies to shares generally. The Amendment of my hon. Friend the Member for Crosby (Mr. Graham Page) would exclude from the scope of the Clause shares acquired as a legatee.
Generally speaking, assets, including shares, acquired as a legatee, are put outside the scope of Case VII by the operation of Clause 11 (8), but Clause 13 is quite deliberately intended to cover disposals of shares acquired as a legatee and also shares acquired before 10th April, this year. That is because if a company is being put to use in connection with land transactions of the type at which this Clause is aimed, the fact that one or more shareholders had inherited shares in that company is not sufficient reason for excluding disposals of such shares from Clause 13.
However, my hon. Friend has drawn attention to what I call a marginal case at which we shall look. I thought, as my hon. Friend put it, that in certain respects he was putting rather a marginal case, but I am mindful of the words of the distinguished Cambridge writer, Lowes Dickinson, that marginal cases may suggest a fundamental fallacy, and while I do not think that there is a fundamental fallacy in the Clause as drafted, there is a point at which maybe we ought to look again.
As I understand my hon. Friend's point, it is that a person can acquire a substantial interest quite inadvertently when his shareholding is increased by a legacy, and that the Clause is unfair on a man who inherits shares in a landowning company which he does not want to keep, and who could find himself taxed by reference to land acquired by the company before the shares came into his possession.
I cannot advise the Committee to accept the Amendment, and I think that it would be wrong to take inherited shares out of Clause 13, but I am certainly prepared, an behalf of my right hon. and learned Friend, to say that between now and the next stage of the Bill we shall consider whether, in computing the charge on inherited shares that were sold, there should be an exclusion of land acquired by the company before the legatee acquired those shares.
I think that that is a point which it would be reasonable for us to look at before the next stage of the Bill. Having said that, I must say to my hon. Friend that the Chancellor could not consider an Amendment which simply excluded shares acquired as legatee from the scope of this Clause.

Mr. Graham Page: I am grateful to my hon. Friend for small concessions, and I am glad that he recognises that there is something in the example I gave. I cannot say that I am satisfied, because I still cannot see why legatees should be brought in at all.
If they are excluded from the earlier Clause, I should have thought that the proper thing to do would be to exclude them from this Clause. There is no possibility of evasion of tax by somebody being left shares in a will. I cannot see how there can be evasion of tax in those cases. However, I hope that

when my hon. Friend looks at the particular marginal example that I gave he will be convinced that my argument is correct, and, therefore, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

The Chairman: In calling the next Amendment, in page 19, line 8, after "land", insert "at market value", in the name of the Chancellor of the Exchequer, I had not intended to call the Amendment to the Amendment in the name of the hon. and learned Member for Kettering (Mr. Mitchison), because it may be discussed in the debate on the Chancellor's Amendment.

Sir E. Boyle: I beg to move, in page 19, line 8, after "land" to insert" at market value".
Taking a simple example of its operation Clause 13, as the Committee realises, imposes a charge in certain circumstances on a person who disposes of shares in a closely controlled landowning company where the disposal takes place outside the ordinary six months' period, however long he may have held the shares.
The chargeable gain under Clause 13 —and I am trying to put it in non-technical language—is, in effect, the lesser of two things, the lesser of either the actual gain on the disposal of the shares, or the appropriate part of the chargeable gains the company would have made if it had, at the time of the sale of the shares, disposed of its land.

Mr. Callaghan: Is that non-technical?

Sir E. Boyle: The hon. Gentleman knows the difficulties that we have on these occasions. At any rate, it is less technical than certain words which could have been used.
The Bill omits to say that the company's gain is to be computed as if the disposal of the land had been for the market value of the land. It may seem that in the context of the Bill the provisions of Clause 13 could only be interpreted as referring to disposal at market value and nothing else. None the less, it is the view of my right hon. and learned Friend that it would be as well to insert these words "at market value" to make the position


clear. As the Committee appreciates, this is, practically speaking, a drafting Amendment.

11.0 p.m.

Mr. Mitchison: I regard this as rather more than a drafting Amendment. I am very glad to see the Chief Secretary to the Treasury in his place, because some little time ago the right hon. Gentleman, as the Minister of Housing and Local Government, was responsible for introducing a Town and Country Planning Bill. What that Town and Country Planning Bill was concerned with was the market value of land in connection with compulsory acquisition. The point that was made, and made repeatedly—and there were many weary days in Committee—by the right hon. Gentleman was that one could not possibly arrive at a market value for land without making certain fundamental assumptions about planning permission.
This went on for some time and the point of the whole exercise was that there was no such general phrase as a "market value for land" and that it was insufficient to say that local authorities should be obliged pay for land at its market value. On the contrary, several pages of the Statute and a large number of Sections were required to explain how one arrived at market value.
Finally, we arrived at market value, and here we have market value without any such reference at all put into the Bill by what is called merely a drafting Amendment. What does it mean? If it is as obvious as all that what is market value, why did the Government some time ago trouble the House at some length with an enormous Measure showing how market value was arrived at?
Is the market value in the Town and Country Planning Act the same as the market value in this case and, if it is, why is all this necessary if market value means something easily comprehended? We ought to be told what particular meaning market value has in conjunction with this subsection. I have always felt, and still feel, that the whole of the arrangements that were put into the Town and Country Planning Bill were really intended to obscure the possibility that market value has a quite ordinary and simple meaning.
An hon. Member opposite introduced a Private Member's Bill providing that compensation should be at market value. The Government said, "We cannot have anything like that. That does not take us any further. We do not know what market value is in that connection. You must say what you mean." There we were, with pages and pages and sections and sections, and yet when it suits them the Government stick in
disposing of its land at market value 
as though it were an obvious trifle so clear to everyone that the Economic Secretary can call it nothing more than a drafting Amendment.
I ask the Government to be a little more consistent. If it is all as clear as that—it naturally means that it is something palpably obvious to everyone, and that is what appears to be suggested—what was the former Act about? Are we to have the assumptions about planning permission when we have to consider something rather different—the provisions of this Clause? Really the two things may appear at first sight to be in different fields, but the point is exactly the same.
I am tempted to the conclusion, if this is really something that is perfectly clear, that the whole object of the Town and Country Planning Act was to make local authorities pay rather more than the obvious market value of the land.

Sir E. Boyle: I do not think that we can now debate the 1961 Act all over again, but I am assured by those who are more learned in these things than I am that "market value" means the price of land on the market.

Mr. Mitchison: I wonder whether the Financial Secretary has discussed this matter with the Chief Secretary to the Treasury, who was the responsible Minister at the time who changed with great forethought over many years the apparently simple proposition that the hon. Gentleman is now putting forward?

Amendment agreed to.

Sir E. Boyle: I beg to move, in page 20, line 17, to leave out "share capital of" and to insert "shares in".
This is quite definitely a drafting Amendment. Clause 13 as drafted applies in relation to companies limited by guarantee as well as to companies


limited by shares. The reference to share capital in subsection (7) is not, I am told, at all apt in the case of a company limited by guarantee. The Amendment accordingly substitutes the reference to shares, an expression which by virtue of the extended meaning given to it in subsection (8) will suitably cover the point.

Amendment agreed to.

Mr. Peter Walker: I beg to move, in page 20, line 28, at the end to add:
(9) Nothing in this section shall be held to apply to a company being a public company whose shares are officially quoted on a stock exchange in the United Kingdom and twenty-five per cent. of which are held by the public.
The purpose of this Clause, which is to capture companies which own land and duly make a capital profit by selling the land by means of shares, is something with which I am perfectly in agreement, but I feel that as at present drafted the Clause will create a serious and difficult problem for public companies. I believe that I am right in saying that at present under the Clause there could be a public company with a London Stock Exchange quotation, perhaps a long-established company, with one shareholder who happens to have more than 5 per cent. of the shares and a group of five shareholders who between them have control of the company. The shareholder with 5 per cent. of the shares could discover, when selling some of the shares, that the Revenue could say that during the past three years the company had acquired or developed a property and a portion of the share price he obtained on his shares was, therefore, taxable under this Clause.
That is an impossible position for such shareholders to be in in public companies. There is no way in which they could discover at the time of selling of some shares whether any particular land had been sold in the last few weeks or months. I should like to know how the Revenue can make a computation as to the proportion of the share price in relation to a particular capital gain in the last three years. Is it to ask the company to make an appreciation of that part of its portfolio?
When the Income Tax Act. 1952, was passed provision was made about Surtax on the undistributed income under Sec-

tion 256 (1 and 5) and public companies were excluded from this provision. I presume that the reason they were excluded was that such companies with a Stock Exchange quotation of more than 25 per cent. of shares owned by the public would be forced to act in a responsible fashion. If the Revenue found that such a company was not acting in a responsible fashion some provision would have to be made. I can well understand that if a person acquired a shell company, and made a gain, if this Amendment were accepted, there should be a tax.
There is, however, the fact that first, he would have to acquire a shell company, which would cost a considerable sum of money. Secondly, he would have to sell 25 per cent. of the shares to the public, and, thirdly, he would have to get a Stock Exchange quotation. I should have thought that one could stop such a device for avoiding tax by arranging that such provisions would not be given to such a shell company for this purpose. If that is not accepted, surely it is reasonable to say that a public company is not to be charged under this Clause unless control passes or a substantial volume of the shares are sold during any one period. It would be a bureaucratic impossibility if the position were created in which, if a substantial shareholder sold a small proportion of his shares—say, £1,000 or £500 worth—the Revenue had to go through the process of calculating exactly what proportion of the £1,000 or £500 worth of shares was connected with a development or a property acquired during the last three years.

Mr. Dudley Williams: It is even worse that that. If somebody owned 5·1 per cent. and sold 0·2 per cent. of his shareholding, would he be taxed on the 0·2 per cent. which he sold, but not be taxed if he subsequently sold the 4·9 per cent.?

Mr. Walker: I have difficulty in reading the general complications of the Clause, but I should imagine that he could sell the 0·2 per cent. and he taxed and sell the 4·9 per cent. and not be taxed. Then there is the question of related shareholders. A person may have 5 per cent. with a brother, a mother, a sister, a son or a daughter. It must often happen that two or more


members of a family hold shares in a company without knowing the holdings of the other person. In any case, how does one know who has a 5 per cent. holding in a public company? People use nominees. It will be very difficult for the Revenue to discover on each share transaction in a property company whether a person has 5 per cent. of the shares. The Revenue will have to trace through all the names of the nominees.
I ask the Government to give careful consideration to the Amendment. Some provision should be made to stop the bureaucratic nonsense which will arise if the Clause goes through unamended. It must be remembered that the majority of public companies act in a perfectly reasonable way and develop their properties or acquire properties in the normal course of their business and are taxed in the normal way.

Mr. Dudley Williams: I support the plea made by my hon. Friend the Member for Worcester (Mr. Walker). It is very difficult to understand how the Clause will be implemented. I am rather surprised that it was not made clear in the White Paper on the Taxation of Short-term Gains, which says that a company is a closely-controlled company within the meaning of subsections (2) and (3), that public companies were to come within the ambit of this control and that it was not to be restricted to private companies.
Everyone in the Committee agrees that this manoeuvre by which people make tax-free profits should be stopped. The profit made by a man who puts up a building, puts it into a company and then sells the shares to the company should be treated as a trading profit. Those of us who have examined the Clause feel strongly that there should not be included within it any reference to public companies, companies which are quoted on the London Stock Exchange or any of the provincial Stock Exchanges.
If this is not done, very serious anomalies will arise. I have written a letter to my hon. Friend the Economic Secretary pointing out some of the difficulties which will arise. I have sent a copy of the letter to my right hon. and

learned Friend the Attorney-General to explain the nightmare I had when considering the Clause. I do not propose to read the letter in full. It refers to a gentleman called Fred who was married to a lady called Gwen. They had two sons. On 1st May, 1962, Fred settled 20 per cent. of his property company on his (wife, retaining 30 per cent. for himself. The remaining 50 per cent. of the shares in the property company were owned by private investors, who had purchased them through the London Stock Exchange.
In the spring of 1963, Fred went on a mission to France. There he met a charming lady called Fifi, who became enamoured of him. When he returned, his wife took a poor view of his adventure, and decided to divorce him. She was extremely wealthy in her own right, and decided not to take advantage of the shares settled on her by Fred, but to hand them over to her two sons. This she did. Those two young men did not approve of Fred's affair with Fifi, and decided to stand for Parliament in order to amend the law of matrimony. Having so decided, they sold the shares in their father's company in order to secure the money necessary to achieve their object. Having done that, they got into very serious difficulty, indeed—

11.15 p.m.

Mr. Diamond: Will the hon. Gentleman tell us how much it was necessary to sell them for in order to buy a seat in the way he suggests?

Mr. Williams: That will become more apparent when I say for which party the two gentlemen stood. The father, I might say, was a Conservative, so the hon. Member must be nervous about which party the two sons stood for.
As I say, they sold the shares to get the money necessary to stand for Parliament, but then found that because they owned more than 5 per cent. of the shares in their father's company, and were related to him—that was the sinister point—the sale attracted the tax. Of course, if their mother had not been so honourable and had retained her shares until the marriage was dissolved, she could have sold them without any trouble at all, because in the Ninth Schedule to the Finance Act, with which we are now dealing, there


is no reference to a woman being connected with a man if she has been divorced from him; she is only connected with him if related to him by blood, or married to him. Because she had behaved in what I should have thought was a scrupulous manner and had disposed of her shares to her two natural sons, those sons were penalised. Had she hung on to the shares until the divorce was completed, she could have sold them free of tax.
But worse was to follow. The sons sold the shares, but the summer of 1963 was very dry and the father did a very great deal of development. As the date of the General Election drew near, of course, with all its uncertainties— although a considerable number of people felt that almost any Government would be better than one that had produced ideas of this nature—the shares fell by half, but the Revenue held that the development that had taken place in the summer of 1963 repesented half of the value of the shares before the fall, so the sons were left with nothing. There was a sequel to this rather sad story because, as a result of subsequent Surtax and Income Tax demands, the sons went bankrupt. The moral is that if one wants social injustice, one does not necessarily have to vote for the Labour Party. Subsequently to those events, there was a dramatic change in Government. The Liberal Government changed the law, with the result that Fifi, who was by now, of course, a rather charming widow, became a million-airess.
I do not think that my right hon. and learned Friend the Attorney-General would like to see such events take place, and I suggest, with great respect, that although we think that we are all in agreement over this manoeuvre to deal with the man who makes use of a private company to make a tax-free profit, there is a very considerable case for saying that the same manoeuvre, the same restriction, should not be applied to public companies.
Let us now try to see what would happen if someone tried to get round the law to make a tax-free profit by means of a public company. First, one would have to obtain a public company. One would have to obtain 75 per cent. control of one and leave 25 per cent. of

the shares in the hands of other shareholders otherwise one would be liable to get one's Stock Exchange quotation stopped.
Naturally, one would have to pay something for the public company in question. Let us say it costs £25,000. One then decides to put up a large building costing, say, £400,000. Being a shrewd developer, when the building is finally erected it is worth £500,000.

Mr. Walker: Has my hon. Friend realised that, having changed the nature of the company, the Stock Exchange would have withdrawn the quotation?

Mr. Williams: I was hoping to get round that. [Laughter.] I was hoping that the secretary or chairmen of the Stock Exchange, in a more explosive moment, would allow the person in question to continue with the quotation of the company. In fact, of course, he would not and it would be suspended. However, assuming that it is kept, one now has a company which originally cost £25,000 to which has been added a building which cost £400,000 to build.
Let us say that it takes eighteen months to construct a building of this nature and that, after eighteen months, one discovers that it can be sold for £½ million—giving a profit of £100,000. Naturally, having paid £25,000 for the shares, the most profit one can get is £75,000. Since one must also allow for 25 per cent. of the shares being in other people's hands, one cannot make more than £50,000.

Mr, Diamond: Might I point out that in the hon. Member's example, for which he has given a number of figures, while his arithmetic might be correct, his assumptions may be miles out?

Mr. Williams: I do not think that they are very far out. To get hold of a public company would not cost much less than the figure I gave. [HON. MEMBERS: "More] If hon. Members think that it would cost more, let us add another £10,000 to the figure and say that it would cost that much more to acquire it. My example still applies. The profit figures I gave apply equally —apart from legal expenses one would incur plus, of course, nursing costs to get over the breakdown or ulcer which all this has caused.
Assuming that £35,000 of the £100,000 is lost because one wants to avoid keeping this building for another eighteen months. If one keeps it for a further eighteen months one's profit, instead of being £65,000 will be £100,000. To sum up, I do not think that any shrewd property man would be willing to go through this difficult manœuvre to give away £35,000 which he could certainly have made tax-free had he hung on to it for eighteen months.
Therefore, I feel that there is no case for the maintenance of this restriction on the activities of public companies. It can only lead to extreme difficulties in the value of shares and the proportion one must pay to dispose of them. I hope that my hon. Friend the Financial Secretary will say that he is at least prepared to give further consideration to this matter before the Report stage.

Sir E. Boyle: I always find the company of my hon. Friend the Member for Exeter (Mr. Dudley Williams) enjoyable and educative. However, I must say that what I said about marginal cases, in reply to an earlier Amendment, could be applied to the story he told. I was rather reminded of an occasion when my father took me to dinner at the Café Royal when I was 15. It was a dark night and as we got out of the taxi he turned to me and, I suspect, forgetting for the moment to whom he was speaking, said, "Pot luck, Edward, on a night like this."
As for the letter mentioned by the hon. Member for Exeter, of which I have a copy, he describes in the third paragraph how, to achieve their aim, the sons needed some cash and disposed of their father's shares. I can tell my hon. Friend that if the sons had sold their father's shares they would have escaped Case VII, but the Attorney-General has some doubt about whether they would have escaped gaol, which is another matter.
The Amendment which was so ably moved by my hon. Friend the Member for Worcester (Mr. Walker) has a serious point and I would like to give a careful reply to it. Clause 13 imposes a charge, in certain circumstances, on sales of shares, however long held, in, first, a closely controlled land-owning company, that is, a land-owning company under

the control of not more than five persons; secondly, a closely controlled company which controls a land-owning company; and, thirdly, a company which has a substantial interest—that is, 5 per cent. of the shares—in a landowning company if the seller of the shares, alone or with his associates, controls the company whose shares are being sold. The purpose of the Amendment is to take out of the scope of the Clause a public company if its shares are officially quoted on a Stock Exchange in the United Kingdom and 25 per cent. of the shares are held by the public.
The first point is that I do not believe that there is such a close analogy with the company Surtax provisions as my hon. Friend the Member for Worcester suggested, because the two cases are quite different. The exemption from the Surtax avoidance provisions was given on the basis that if members of the public held 25 per cent. of the equity the company would pay reasonable dividends, so that it would be unnecessary to apply the Surtax anti-avoidance measures to it.
The same argument does not apply to Clause 13, which is aimed at the disposal of land indirectly through the medium of companies. Operators in the property world—and I do not use the expression in any pejorative sense—could realise a profit in respect of land acquired by a company by selling the company's shares if the company is one in which the public has an interest, as well as if it is one in which the public has not.
The taking of a profit on land, or part of a profit on land, through the sale of a company's shares may well be by way of arrangements for selling off shares in a private company to the public. Further sales of shares by the operators could be effected after the first sale to the public, and such further sales would escape the charge if there was an exemption for companies in which the public is substantially interested.
We must try to look at it realistically. The Amendment would apparently let out not only the individual who sells shares in the company, with a 25 per cent. public share holding, but also such a company which itself sells shares in a closely controlled company. I am not


certain whether this result is in the minds of my hon. Friends, but one has to bear it in mind and there are difficulties about going as far in this matter as my hon. Friends want to go.
As to the Clause in its present form being as my hon. Friend the Member for Worcester has described it, "bureaucratic nonsense", and on the question of how it will work, I would ask my hon. Friend to pay attention to subsection (5). I will not read out the subsection or even a translation of it, because I do not think that the Committee would take kindly to it at this late hour, but it is designed to deal with the point which my hon. Friend was making. It is an extremely good piece of drafting, but I do not think that it would be to the taste of the Committee to have it read now.
This is an important issue and we will look, between now and Report, at Clause 13. We shall look at it from the point of view of profit from the administrative point of view, and from the general policy angle of whether it has too wide an ambit. The Government fully realise the anxieties felt and will look at it again. But at first sight it seems to me to go too far to suggest that we must take out of the Clause shares of a company being shares officially quoted on the Stock Exchanges of the United Kingdom and where 25 per cent. of the shares are held by the public. I do not believe that one could make an Amendment as wide as that without wrecking a Clause which is necessary to the Government's whole scheme.

11.30 p.m.

Sir Cyril Black: I do not want to detain the Committee for more than a few moments at this comparatively late hour, particularly in view of the speech which my hon. Friend the Financial Secretary has just made to the Committee, but I think that it should be made clear that many of us, I think, on this side of the Committee hold the view that, as drafted, the purposes of the Clause are perfectly reasonable but the operation of the Clause in a number of particulars, as I could show if I were to take time to do so, is practically impossible
In view of what my hon. Friend has said I do not intend to make the speech

which I certainly would have made if he had given an uncompromising reply to the, points already made by my hon. Friends the Members for Worcester (Mr. Walker) and Exeter (Mr. Dudley Williams), but I take it from what has been said that my hon. Friend is willing to consider, and to consider carefully and even sympathetically, any cases of injustice and practical difficulty which can be brought to his notice and which, in the view of many of us, would inevitably arise under the Clause as it stands at the moment.
I understand from what my hon. Friend has said that it is his intention to look at the matter seriously in the light of what has been said tonight and other representations which may be made to him, and if that is so, as I understand it to be, I do not intend, at any rate on this occasion, to burden the Committee with the speech which I would otherwise have made.

Mr. Diamond: In just two minutes, because the hour is somewhat late, I appeal to the Government, when giving this matter consideration, to consider even further the point which was well made by the Financial Secretary, namely, referring to the fundamental fallacy in the argument which the hon. Member for Worcester (Mr. Walker) put forward. The hon. Member for Worcester, who is very well informed on all these matters, said to begin with that, in principle, he was in favour of what the Clause intends to do, but, in particular, he wanted to exclude certain companies, and, although he did not say so specifically, obviously he had in mind the exact parallel of the Surtax provisions.
In the Surtax provisions there is a complete antithesis between the company on the one hand and the shareholders on the other hand. There is the company wanting to hang on to its profits and not distribute them for they would be taxable; there are the shareholders, namely, 25 per cent. of them, desiring to receive dividend. There is a complete antithesis between the one and the other. On this proposal which we are now considering there would be no antagonism between the board and a section of the shareholders: they would be sharing tax-free profits. In those circumstances, the parallel is absent.

Mr. Walker: I am grateful to the Financial Secretary for his promise to reconsider this matter, and for his reference to subsection (5), which is obviously regarded as a treasured piece of drafting. It is a good piece of drafting which three hon. and learned Gentlemen on this side of the Committee have interpreted for me. However, in view of the assurance which has been given, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause, as amended, ordered to stand part of the Bill.

Mr. H. Brooke: On behalf of my right hon. and learned Friend the Chancellor, I should like to express appreciation to both sides of the Committee for the very fair progress we have made today. In my judgment, we have reached a point from which we ought to be able to conclude our discussion on the remaining Clauses and Schedules of the Bill tomorrow and yet at a reasonable time of night, and we shall be able to start clear away on the new Clauses next week. If that is generally acceptable to the Committee, I beg to move,
That the Chairman do report Progress and ask leave to sit again.

Mr. Callaghan: I am glad the Chief Secretary thinks that we have made good progress today. I agree with him. Of course, I could not say now whether we shall be able to finish the Clauses tomorrow, because so much depends upon the right hon. Gentleman's hon. Friends, who have a number of Amendments on the Notice Paper. Therefore, a great deal of the pace will depend upon them. Speaking for myself, I hope that the Committee will accept the right hon. Gentleman's Motion.
This evening, I was fascinated as I listened to the intricacies of the capital gains tax. The quality of the Treasury Bench reading has improved. The diction is good, the expression is most marked and the Treasury Ministers sometimes read as though they are actually making a speech. I enjoyed listening. I felt that I understood at least one word in five. I ask the Financial Secretary to go a little more slowly now and again, however, so that those of us with slower comprehension can at least try to pretend that we are taking past in the debate when he is speaking.
We have had a number of changes in bowling today. At the end of each over, it has been interesting to watch who would speak next. The Attorney-General bowls straight up-and-down stuff. There is nothing very guileful about it, but he goes on steadily. The Financial Secretary moves the ball both ways. We are never sure which way it will come, but he is capable of making it move in the air and he does it very well. The Solicitor-General has stood at long stop all day and has not been called. There he has been, holding the coats with his briefs in his hand, but has not had a chance of coming on to bowl.
The Chief Secretary opened the bowling, but he had so many runs knocked off him that he bas not appeared at the wicket again. The Economic Secretary, a good change bowler, bowled a couple of overs, but he did not look much like getting a wicket and he retired to square leg and has not reappeared. We have not seen the captain all day. So disgusted was he with the operation that he has not been near the field of play.
I do not think that this team is likely to get many wickets this evening. The Government bowling has been of such an ordinary character recently that it is clear that we should give them a rest in the pavilion. Therefore, if my hon. Friends agree, I am ready to accept the Motion and I hope that tomorrow we will make good progress.
I hope, however, that we do not part too much on terms of acerbity. I have been interested to see a large number of hon. Members opposite present tonight to discuss the capital gains tax. I wish that they had been here yesterday to help me in connection with a simple proposition to relieve of taxation those who are lowest paid. Had they heard the case that was put, I believe that we would have heard a great deal more pressure upon the Treasury. I hope that they are not only interested in the capital gains tax, but will join us later on the new Clauses and help us in our efforts for some of the other people who are affected and not merely property companies in the City of London.

Question put and agreed to.

Committee report Progress; to sit again Tomorrow.

ADEN (INDUSTRIAL RELATIONS)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Peel.]

11.39 p.m.

Mr. Robert Edwards: I am grateful for the opportunity in this Adjournment debate to deal with a small Crown Colony—Aden—on the southern tip of the Arabian Peninsula. It is one of the smallest of the territories under the control of the Colonial Office, its population is only 150,000 and it is a long way from this country, but there are problems affecting the industrial workers of the Colony which should be discussed in this House.
It is not my intention at this late hour to deal with the large political issues involved in the Middle East. All I want to say is that if we consider Aden to be an important part of our strategic defence of the Middle East, it is clear to me that if that defence is to be real we must have the good will of the people in the Colony. At the moment we are losing that good will. We are turning thousands of industrial workers sour. We are creating anti-British propaganda that is sweeping the Middle East because in the sheikdoms from the Trucial Coast to the hinterlands of Aden we still consider we can apply the old, outmoded colonial policy that died years before the end of the war.
Aden has not to be considered as we consider Muscat and Oman or some of the little sheikdoms up the Trucial Coast. Here is a very large concentration of industrial workers, and there is a state of tremendous industrial unrest among them. They are strongly organised in trade unions. These are not Communist unions. They are trade unions affiliated to the International Confederation of Free Trade Unions, to which the British Trades Union Congress is affiliated. Yet these trade unionists are denied the right to withhold their labour to defend their own day-to-day interests.
The Legislative Council of Aden, under the pressure of the Colonial Office, has maintained an industrial

relations ordinance which makes striking illegal. If there is one principle which separates us from totalitarian 'countries, it is that we believe that working men and women should, if their negotiations reach deadlock, have the right to withhold their labour. When industrial workers are denied the right to withhold their labour in the interests of their living standards, they are denied elementary freedom. That means that they are living under a dictatorship, and democracy becomes a farce.
Over the last few months I have asked many Questions about the situation in Aden. On 27th February I asked the Secretary of State for the Colonies
if he will make a statement on the state of unrest in the Aden Colony which has led to the threat of a general strike.
The reply I received was:
I am advised by the Governor that there is no such unrest or threat of a general strike.
The same day I asked the same Minister why the general secretary of the Technical and General Workers' Union in Aden had been arrested. The reply was that he was arrested for
inciting a strike in contravention of the Industrial Relations Ordinance.
The same day I asked why the president of the Aden Refinery Workers' Union had been arrested. The reply was that he was arrested for
Inciting a strike in contravention of the Industrial Relations Ordinance."—[OFFICIAL REPORT, 27th February, 1962; Vol. 654, c. 124–5.]
On that very same day we were informed in this House that, according to the Governor, there was no such unrest and no threat of a general strike. If there is no unrest, why are two leading officials of two major unions arrested and imprisoned, charged with inciting the workers to strike?
Two leaders of the Aden trade union movement are serving terms of imprisonment of twenty-three months and another is serving ten months. Hundreds have been fined. Thousands, even in such a small Colony as this, have been dismissed for union activities. How is it possible to create harmony? How is it possible to maintain any kind of a strategic defence in the Middle East from an area where the whole population is being turned hostile to the


Legislative Council and to the British Government?
I am not making frivolous charges. The I.C.F.T.U. discussed this matter and sent a deputation to Aden. It consisted of two members of the Executive Council, and they met the Governor. They were so appalled by the situation that they protested to the I.L.O. The nature of their protest was that the ordinance relating to industrial relations was a violation of the I.L.O. Charter as it related to free collective bargaining and the right of workers to join unions of their choice. They protested that the journal of the Aden T.U.C. had been suspended, so that the workers had no voice. They protested that hundreds of workers at that time had been dismissed only because they were trade unionists.
They asked the British Government to intervene in Aden so that the ban on the union paper would be lifted and the ordinance modified so that democratic trade unionism could function again. They asked that the trade unionists who had lost their jobs in the public service should be reinstated, and that the Government should also invite the private employers to reinstate workers dismissed only because they were trade unionists.
Of this very small Colony of 150,000 people, 4,000 are Europeans. There is great concentration of industrial workers in the ports, because this was a great coaling port, occupied by the British in 1830 during the period when we needed to keep our trade with India free. A very large number of workers are still engaged in the ports. There is a large British refinery employing 2,500 workers. There are a rubber processing industry, a plastic industry, and by-product industries. There is a very large industrial population, reckoned as a percentage of the total.
When a large number of industrial workers occupy the same kind of employment, it is a natural development that they should get together and form trade unions to defend their position and advance their living standards. This has happened everywhere in the world. No repressive measures or ordinances can prevent the development of trade unions, and this ordinance in this British Colony has been imposed to deny the right of

industrial workers through their unions to withdraw their labour when their claim for a decent wage advance has been denied.
There was a token strike in the refinery after twenty-three months of negotiations which were abortive. Is there anything wrong with that? Is it a crime for workers, frustrated after so many months of negotiation, to withdraw their labour? The right to withdraw labour is a right which was won after generations of struggle by the industrial workers of this country. I said in a supplementary question in the House the other day that Cairo Radio was calling these men the Tolpuddle Martyrs of Arabia, and all over the Middle East these men are becoming martyrs.
Who knows better than we do that all history, ancient and modern, has proved that When men become martyrs, they become leaders, that ideals cannot be destroyed by suppressive measures, that the status of a leader is not lowered by putting him in gaol? This stupid method of destroying a movement has been tried all over the world and all over the old British Empire and has failed. Do we not learn any lessons from the past?
Only last year there was a delegation from the Trades Union Congress of Aden to the British Trades Union Congress. Those two bodies held a joint meeting with the International Confederation of Free Trade Unions in London and that joint meeting asked the British Government to have another look at the situation in Aden to see what could be done to wipe out this ordinance and lift the ban on the trade union journal, but nothing has been done.
The situation is becoming more dangerous every day. In 1957, 2,060 days were lost through industrial disputes. In 1958, the figure was 7,000 days and in 1960 there were 87 separate industrial disputes in this little Colony. Even now, although it is a criminal offence to come out on strike, there have been token strikes and on 11th May, this very month, there was a general strike in Aden.
The Government ought to reconsider this situation to see what can be done to have a new beginning and to create a new atmosphere in Aden so that the trade unions can operate effectively and


peacefully and democratically. This can be done only by bringing all the elements involved together in a conference and by promising to wipe out this ordinance which cannot be justified in any democratic Parliament, and by lifting the ban on the trade union journal, a ban which cannot be excused in a free society which claims that its freedom is based on the right of the workers to join a trade union of their choice and to withdraw their labour if negotiations fail, the right of a free Press and the right of free assembly. Those rights are denied the industrial workers of Aden and unless those elementary democratic rights are won back, there will be trouble in this little Colony, trouble which all decent people want to avoid.
I hope that the Under-Secretary will give us some assurance that the Government will look at this situation again so that the whole affair can be reviewed with a view to easing the tension which can be reduced only if trade unionists are given their due rights.

11.55 p.m.

The Under-Secretary of State for the Colonies (Mr. Hugh Fraser): The hon. Member for Bilston (Mr. R. Edwards) has been very vigilant on these matters. I welcome the vigilance of the House on this matter of trade union relationships in Aden, but I must say that some of the statements made by the hon. Gentleman are wide of the mark. He talked about many being imprisoned, about hundreds being fined, and about thousands being dismissed. There are wild exaggerations. During the period to which the hon. Gentleman referred, 16 persons were fined for taking part in the recent building strike, the secretary of one union was sentenced to two years' imprisonment—but mainly on a charge of sedition, for attempting to bring down the Government—13 others were committed to prison, and five others were bound over. Also, 30 members of the Forces Union are being summoned as a result of the last 48-hour strike which the hon. Gentleman referred to as a general strike, which again is untrue.
I disagree with the hon. Gentleman when he says that labour relations have deteriorated. On the contrary, labour relations over the period that we have

been discussing since the introduction of this ordinance have greatly improved. In October, 1961, there was a building strike; in December, 1961, two short strikes at the B.P. refinery and in April and May, 1962, there were two short strikes by the Forces Union, to which I have already referred. The International Labour Organisation carried out an investigation to see whether the ordinance to which I shall refer in the main body of my speech was in order with Convention 98, that is, with the right to organise collective bargaining, and came to the conclusion that it was, and that it was not incompatible with this Convention. Therefore, what the hon. Gentleman said about the I.L.O. being opposed to the ordinance is not true.
I should like to discuss with the House the reason for imposing this ordinance in Aden. The main object of it is to see whether we can work out a harmonious relationship between both sides of industry in Aden. This may seem an odd way of going about it, to control and insist on arbitration, but by the end of 1959—and trade unions only started in a big way in Aden in the middle 1950s—in spite of visits from trade unionists in this country, which we welcomed, the situation had got to such a pitch that voluntary bargaining and co-operation between the two sides was not, functioning at all. Indeed, in 1957 and 1958 there had been 37 strikes; in 1959 and the first half of 1960 there were 118 strikes; and of the 84 strikes in 1959, 68 took place before any dispute was reported to the Labour Department at all.
As the hon. Member said, there are political undertones in this matter and, of course, industrial relationships are bedevilled to some extent by local politics. We thought that in view of the serious worsening of industrial relations and the threat to the general progress of the Colony an attempt should be made to put these matters in order. In consequence, in 1960 a special adviser on industrial relations, Mr. Fallows, a former British trade union official with forty-two years' experience in the movement, went out to investigate.
After spending three months in the Colony trying to obtain, without much success, the co-operation of union


leaders, Mr. Fallows submitted a report from which I would like to quote his main conclusion. He said:
Freedom to combine as well as to enjoy immunity from legal process for otherwise tortious acts, has placed in the hands of the trade unions of Aden a power of such magnitude that the community can be held almost to ransom and at the same time be used as an instrument to coerce and undermine Government. However charitably one may be inclined to regard this young trade union movement it is impossible to avoid the conclusion that this freedom to combine and their immunity at law seems to be regarded by them as a licence to strike on the slightest pretext and if order is to be brought to the industrial relations in the Colony all concerned must conform to good industrial practice and live and work within the framework of normal negotiating processes.
The key passage of Mr. Fallows' report was as follows:
I am convinced that steps must be taken to prevent by suitable restrictive legislation the present easy access by the trade unions to the strike weapon.
This is why this ordinance of 1960 was drawn up.

Mr. G. M. Thomson: Is there not a difference between announcing that there may be some sort of restriction and going ahead with an outright ban making all strikes illegal? Would it not be good to have a cooling-off period?

Mr. Fraser: It is an exaggeration for the hon. Gentleman to say that all strikes are illegal. This is not true. What was aimed at was to bring in this enactment, based on this experienced trade unionist's advice, and to set up an independent tribunal—the Industrial Court—to which labour disputes not settled voluntarily must be brought for compulsory arbitration, and it imposed certain restrictions on the right to strike and to lock out.
The legislation emphatically does not ban all strikes. This is an important point. First, strikes are not illegal in industries Where wages councils are created; secondly, they are not illegal where the Crown as employer is not prepared to accept arbitration in disputes; thirdly, they are not illegal if in the opinion of the Industrial Court an employer tries to take advantage of the men's inability to strike and does not negotiate in good faith; and, lastly, and most important, they are not illegal

where a collective agreement has been concluded, providing satisfactory arrangements for the settlement of disputes between the parties, and has been registered with the Industrial Court.
It is perfectly true to say that as a result of this legislation there has been a notable increase in the number of agreements which have been made by the employers and by the unions. But although a considerable number—I think ten—of the major unions have concluded such agreements they are not prepared for political reasons to bring them before the Industrial Court and register them. If they would do this they would, of course, make their Whole situation infinitely easier. It is my appeal tonight that they should do this and so enormously ease the burden of their own problems by registering the agreements which in many cases they have reached.
I think that this provision is an entirely constructive one. Any trade union can throw off the restriction and gain complete freedom of industrial action simply by concluding an agreement with provisions for the settlement of a dispute, which many have done, and submitting it to the Industrial Court and obtaining a certificate. Although the procedure for obtaining a certificate is simple and straightforward, a union cannot be deprived of a certificate once it is obtained unless its conduct can be shown to be of such a nature that it should be withdrawn. That can be done only by a full-scale board of inquiry. This means that the gateway to complete trade union freedom is an easy one to go through, but once gained complete trade union freedom cannot easily be again restricted.
It is completely open to the trade unions in Aden if they wish to register agreements with the Industrial Court. In one respect trade unionists in Aden might be said to be even more safeguarded than in this country. This is one of the peculiarities of the situation, for the fact is that certain aspects of trade union law there are even stronger in the protection of the individual than here. When I heard the hon. Member saying that people had been dismissed for trade union action, I thought that that was totally untrue, for there is a


special provision in the law there that a man cannot be dismissed if he is merely asking people to join a trade union. If he were dismissed from employment for that it would be an illegal act under this ordinance.
Although there are difficulties, I believe that this legislation has been helpful in Aden. It has certainly reduced the number of strikes. It has led to the conclusion of quite a number of agreements and we hope that in the not too distant future we shall be able to look at the whole matter again in the light of what is happening. It must, however, be in the light of a reasonable attitude by the leaders of the trade union movement in Aden. They must not rely on using the strike weapon and the trade union movement—which, as an industrial movement, is fully protected—as a political movement in an attempt to overturn an elected Government.
There are immense complications in the Aden situation, complications in that more than half those employed come from outside Aden and are not citizens. There have to be special provisions to

make sure that there is industrial order and if there is co-operation there can be complete freedom. It may be that the time is approaching when confidence between the employer and employed will grow to the point where normal industrial processes can be fully accepted by both sides and the special restrictions of the 1960 ordinance may no longer be necessary.
We must allow this decision to be left to those in charge of the situation in Aden. The position is open to those who wish to conduct their union affairs in an orderly fashion. Since the ordinance there has been a great advance in claims accepted. I have seen a complaint by the chamber of commerce that some of the awards have been far too high—

The Question having been proposed after Ten o'clock on Tuesday evening and the debate having continued for half an hour, Mr. SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at nine minutes past Twelve o'clock.